Gillette Safety Razor Division

Ralph Bingham, VP new business development of Gillette Safety Razor Division (SRD) needs to decide whether to enter the rapidly growing blank recording cassette market. He is assessing whether Gillette can use its strengths in high volume manufacturing and marketing of mass distributed packaged goods to assume a leadership position in this new market. I recommend Gillette avoids entering this market Analysis The SRD commissioned consultancy report on the recording cassette market did not focus on how consumers use cassette recorders and it does not allow for comprehensive understanding of different customers.

In the report, potential customers are segmented into 3 categories by type of usage: 1) Students who use cassette recording for taking notes and recording lectures. 2) Business people who use them for dictating and recording conferences and 3) households who use them for recording and playing music. This segmentation is not focused on the different benefits customers can derive from the product and is too broad; the same customer can belong to more than one segment and will potentially be presented with conflicting value propositions.For example: the “household” category includes teens who are students as well as business people who are parents, this category does not identify the different users within the home, nor does it recognize the individual making the purchasing decision within the category.

Teens and parents are both “bucketed “in this category although they potentially use the product for different reasons and should be approached with different value propositions.A teenager who buys the product using her allowance and is interested in recording popular music off the radio will be less focused on quality and more on price than her parents who are avid classical music fans. Currently the blank cassette market is characterized by a lack of market leader, poor packaging of the product, very little advertisement and weak product display strategy by existing players. SRD possesses considerable strengths relevant to entering this market 1) Marketing of mass distributed packaged goods, and 2) high volume manufacturing of plastic products.

However those strengths are not unmatched. the existing well-known brand name companies in this market (Sony, 3M and Mallory) have the advantage of already being active in this market, they are likely to see the same potential that SRD recognizes and have the advantage of already being in the cassette business, understanding its potential and weaknesses better than SRD. The potential has already been recognized by RCA and Capitol records who had recently entered the market, and Memorx is about to do the same.Memorex plans to utilize the same advantage that SRD is planning to, specifically targeting the issue of aggressive marketing. Memorex has hired P&E marketing executives and a sales force of 50 to lead this effort and is ahead of the game compared to SRD which will only be able to allocate, at best, 10% of its sales force time to this new endeavor. Secondly, there has not been a thorough investigation of the internal resources required to enter the market.

SRD’s manufacturing manager claims that it could take as long as a full year to achieve the desired rate of production. Other companies are ahead in this race and during this year an existing player could position itself as a production leader, taking away from Gillette’s ability to capitalize on its mass production expertise in order to capture the market. The blank cassette tape market is segmented into 3 kinds of products: 1) Professional quality cassettes 2) Standard quality cassettes and 3) budget quality cassettes.Within the quality differentiated segments there are 4 possible lengths of cassette recording times. SRD is faced with 5 main options: 1) not entering the market 2) introducing all/a combination of different quality cassettes 3) introducing professional quality only 4) introducing standard quality only and 5) introducing budget quality only. The decision of whether to enter this market is driven by Mr.

Bingham’s concern about not achieving an earnings growth target.To achieve this target, in considering this market SRD will have to focus on Profits more so than on market share. Introduction of professional quality cassettes will allow for highest profit margins (See profit margin and breakeven analysis in appendix A). However this is the smallest segment for cassette tapes and Gillette will face competition from the well known brand names who sell their tapes in audio shops and home entertainment departments where Gillette does not have strong presence or aggressive sales capabilities.The reakeven quantity of over 3M is larger than DSR will be able to produce for the first year, and producing a larger quantity in coming years will not be able to be supported by the existing sales force The standard quality cassette segment provides most promise as the report suggests it is a growing segment that could potentially provide adequate margins.

(See profit margin and breakeven analysis in appendix A). However, given the aforementioned existing companies that already operate in this market it is unlikely that Gillette will be able to assume a leadership position in this segment and command a premium price for its cassettes.It is unclear that Gillette will be able to provide greater benefits than its competitors to the customer. Also, although there appears to be ample demand, the breakeven quantity is too large to be achieved without additional manufacturing capabilities and sales force. Introduction of Budget quality cassettes will likely provide the lowest margins and does not match Gillette’s focus on profits, in this segment price is king and consumers, SRD will need a very high volume of sales, which it will not be able to do for at least one year, and is not likely to yield much benefit from its brand name.Recommendation I advise SRD avoids the blank cassette market and explore opportunities in markets that are closer to its core capabilities of shaving technology and high volume precise metal manufacturing, for example developing a more elaborate shaving series for Women.

Offering advanced technologies and additional products to their large existing consumer base is likely to be an easier way to achieve the desired earnings growth than going after new consumers.