Gillette Indonesia Case Analysis

Name: Islam Azzam

Cohort: Back Bay

Date: 15th Feb 2014

Core Issues and objective of the report

The core issue is: Can Gillette increase sales in 1996 at a rate that satisfies regional Asia-Pacific Growth Plans? If
the answer is yes, how can this be achieved that?
To answer this question, closer look at the current situation in Indonesia and the market trends is required.
Background:
The shaving practice is in a developmental stage in Indonesia. This is mainly driven by increase in shaving
incidents in urban areas by 24% on average during the last two years (1993-1995). This rate is calculated as
follows:
Shaving incidents in 1995:
40 million (urban men above 18) * 80% (who shaved) * 5.5 (shaving times/month) = 176 million/ month
Shaving incidents in 1993:
40 million (urban men above 18) * 66% (who shaved) * 4.5 (shaving times/month) = 119 million/ month
Total growth during the last two years (1993-1995) = 176/119-1 = 48%
Average potential market expansion rate per year = 24%
To get better understanding of the market, below is a calculation of the Shaving Blades market size:
Total number of consumers (in urban areas) = 40 million * 80% (who shaved) = 32 million consumer
Total store-bought blade consumers = 32 million * 40% = 12.8 million
Always use blades
(32 million * 20%)
= 6.4 million consumers
Total number of blades
by urban area consumers
in a year

= 6.4 m * 15 (Blades)
= 96 m blades sold

Total urban area market volume (1995) =

Occasional users
remaining consumers
= 6.4 million consumers

= 6.4 m * 4 (Blades)
= 25.6 m blades sold

122 million blades

However, the case doesnt provide any information about rural areas market size or consumption, which is a
large market (65% of the population live in rural areas and accordingly number of men above 18 yrs should
amount to 74 million) which is a segment of potential.
At this point, 1995 Market size should be calculated, primarily, to calculate the average market growth for the
last two years (1993-1995) and secondly, to estimate the rural market size for blades.
- 1995 market size (volume):
Gillette represents 48% of Blades market in 1995, then market size = 115million (Gillette sales)/48%
Total (rural and urban) market size in 1995 = 240 million blades

First: Market Growth

- 1993 market size (volume):
Based on Gillette growth (17% in 1995) and (60% in 1994), and Gillette market share in 1993 (28%)
1994 Gillette sales = 115m (1995 sales) / 117% = 98.3 million blades
1993 Gillette sales = 98.3m (1994 sales)/ 160%= 61.4 million blades
1993 total market size = 61.4m (Gillette sales) / 28% (Gillette market share in 1993) = 219.4 million blades
Total blades market growth during the last two years = 240/219.4 -1 = 9.4%
Average yearly blades market growth (1993 - 1995) = 4.7%
This means that Gillette growth resulted from expansion in the existing market and acquisition from
competitors market share. This is driven by efficient distribution in the urban areas as explained below:
Second: Rural blades market performance (1995):
Rural market size = 240 million blades (Total market) 122 million blades (urban market) = 118 million blades
This means that rural areas represent 49% of the total blades market; however Gillette sales split between
rural and urban areas doesnt follow the same ratio as explained below:
Gillette Total sales = 115 million blades (given in the case)
Gillette Urban sales (vol.) = 115m * 60% = 69m blades - represent 56% of urban areas blades market (above)
Gillette Rural sales (vol.) = 115m * 40% = 46m blades - represent 39% of rural areas blades market (above)
Comparing all data above, its clear that difference Gillette market share from 56% (urban) to 48% (total
market share) is due to lower market share in half of the Indonesian blade market (rural areas) which suggests
a clear business opportunity if Gillette matches the same distribution efficiency and market promotion plans
for the urban market.
Analyzing market split by product categories:
Gillette competes mainly in three categories: Double Edge blades, Disposable Blades, and System Blades.
However, Gillette sales split is different from that of markets in advanced developmental stages in Asia-Pacific
region. See the figure below:
Although Gillette expansion strategy is based on penetrating
the market with simple blades to introduce the shaving
concept and then upgrading the market to higher value
products and shaving systems, Indonesian Gillette sales
shows that Gillette is still in the first phase of this process,
introducing the shaving concept through simple double edge
blades. If Gillette focuses mainly on more developed urban
markets, as shown above, this shouldnt be the right split.
So, Gillette should aim to achieve Malaysian market split
and then the Australian market split.
Growth in double-edge blade category reflects Gillette distributors focus on catching easy sale than building a
new market. This is a strategic issue that should be handled in the go-to-market plan of 1996.
Reviewing Gillette market share by category, the following inferences are made:
- High focus on Double-edge blades affected sales of systems and disposables blades.
- Disposable and System categories market share is very small compared to other Asia Pacific market, this
is calculated as below:
15M (Gillette sales) / 90% (premium priced segment share) = 16.5M

This represents 6.8% of the market.

That total Indonesian market is still under development and needs to be educated on higher value
blades to reach other Asia-Pacific developed markets standards
System and disposable blade markets are mainly driven by Gillette sales. This market grows mainly by
consumers upgrading efforts from Double-edge blades to Disposable and System blades.

Strategies:
Based on the current situation analysis above, Gillette proposed growth strategies for 1996 are:
Urban Market penetration:
1) Upgrading Strategy: as per Gillette market development strategy, its time for Gillette to start upgrading
current consumers to higher value products and shaving systems. For the next year, focus should be to
start the Disposables Expansion Plan. However this will result in increase in consumer value, not
increase in company consumer base. (explained below in details)
2) 60% of shavers in urban areas who use wet and dry knives represent an untapped opportunity for
Gillette. Gillette should educate the non-users about the benefits of using store-bought blades and
convert them to users.
Brand funnel below displays several expansion opportunities (vertical and horizontal) to increase sales
from current consumers or through increasing consumer base by shifting males from shaving using
traditional methods to using store-bought blades.
New Market Development (Gillette Rural Plan):
- Reach 56% share of rural area blades market (the same of urban market).
- Rural areas should be targeted with high efficiency distributors with sales target of 66m in 1996.
- Rural blades market potential should be studied and complete opportunity analysis should be done to
develop specific sales and promotion targets.
As there is not enough information about the rural area market, so, I will explain briefly size of the
opportunity based on the information available in the case and move to the urban areas upgrading plan.
As explained above, information presented in the case suggests that Gillette currently focuses more on
urban areas as urban : rural ratio is 60:40 of Gillette sales. However the market splits differently as shown in
the figure below:

Market sale split

Gillette sales split

So, Gillette needs to develop a deeper understanding of rural area consumer needs and reevaluate the sales
split accordingly.
Gillette market share in rural areas is 39% compared to 56% in urban areas. If Gillette attempts to match the
same market share obtained in urban areas, and reach the same distribution efficiency level, its sales will
increase by at least 20m blades/ year as calculated below:
Proposed rural areas sales = 118m (rural areas market size) * 56% (market share to achieve) = 66m blades
Increase in rural area sales (vol.) = 66m 46m = 20m blades (this is without considering market growth)
So, rural areas market represents extra 20m blade sales opportunity for Gillette. However, this geographical
market should be studied in depth and clear opportunities should be defined.

Upgrading Strategy Disposables Expansion

As explained in details in the below graph and table, this is the primary strategy for 1996
48% Market share

1995

87%

52%

Market

9%

4%

56% Market share

1996
-

77%

11%

1995

1996

Market

13%

Maintaining a market share of 56% means also reaching a cumulative market share of 56% for all
category sales (Matching urban areas market share and rural areas expansion plan mentioned above).
Double Edge Blades

44%

Indonesian Market
Gillette Indonesia

223.5
100

Disposable Blades

System Blades

Total

10

240
115

16.5
5

Market Share

45%

Indonesian Market
Gillette Indonesia

108

15

18

252
141

Gillette growth

8%

200%

80%

23%

Gillette Split 1995

Gillette Split 1996

87%
77%

4%
11%

9%
13%

100%
100%

90%

48%

Market figures are based on 4.7% growth (as calculate above in page2)
Maintaining market share of 56% and deducting Double-edge and System blade sales proposed by the
marketing manager, Disposable blade sales in 1995 should triple in the next year.
Gillette should consider changing product mix to focus on Disposable and System blades
An extra 20 million double-edge blades should be sold in the rural areas, as a part of the New Market
Development plan adopted. (as mentioned above)
Production capacity should be reviewed before sending proposal to Asia-Pacific office.

Gillette Brand Funnel shows growth opportunities size in urban market:

Market expansion:
(Culture trend)

Market expansion:
(Education to increase consumer base)
(Horizontal Expansion)
Current consumer acquisition:
(Competitive advantage)
Upgrading strategy
(Vertical expansion)

Go-to-Market Plan:
: Different Go-to-Market plans should be adopted in two markets (urban and rural) based on different
strategies and objectives for each market.
Product
Product category mix mentioned above.
For expansion into rural areas, focus should be on Double-edge blades mainly on Gillette Blue blade and
Gillette Goal Blue since they cost much less than Gillette Goal Red (25%-50% less). This would be more
appropriate for such a price sensitive market. Manufacturer gross margin for both is only 4%-6% less than
the Gillette Goal Red. (see margins table in the pricing section below)
Distribution:
Large segment of next years expansion plan success will be based primarily on Gillette distribution
efficiency, especially in rural areas. Current route-to-market is presented in the figure below:

Manufacturer

Distributor

Wholesaler

Consumer

Retailer

In expansion process Gillette should:

- Monitor closely performance of current distributors and evaluate their efficiency.
- Set KPIs for all the distributors sales staff. (e.g. sales vol., sales val., number of visits, drop size, etc.)
- Train and educate all staff on selling techniques for the new product mix as per expansion plan.
- Train and educate distributors major clients of wholesalers and retailers on benefits of our products
to achieve a unique message to consumer.
- Recruit new distributors for higher coverage for rural areas.
- Build a network of big wholesalers in rural areas which are not attractive enough for big distributors
to cover, and create a hybrid payment model thats attractive enough for them to get engaged in
Gillette business.
- Achieve more sales through supermarkets, as they mainly target shaving system consumers.
Pricing:
-

Based on table below, its clear that pricing strategy for distributors and retailers should be
reviewed.
MFG Gross Margin

Distributor Margin

Retailer Margin

A. Double-edge Blades
Gillette Blue Blade
Gillette Goal Red
Gillette Goal Blue

47%
50%
48%

25%
27%
27%

27%
25%
27%

B. Disposables
Goal II
Blue II

32%
52%

32%
29%

23%
23%

C. Systems Blades
Gillette GII
Gillette Contour
Gillette Sensor

52%
52%
40%

34%
29%
29%

17%
23%
24%

After reviewing distributors and retailers margins and comparing them to companys gross margin,
highlighted margins are the highest for each distribution stage. Accordingly each channel member

will be pushing on a different product line because it generates higher margin for him, which means
more profits. This will lead to conflict of interest along the distribution channel.
e.g. Disposables are the least attractive to retailers although they are attractive enough for
distributors, so, even if distributors load high amounts from Disposables, its highly probable that
they will be stuck in his warehouse as most of retailers will order different product lines like Gillette
Goal Blue that has faster turnover and higher profitability.
So, Gillette blades margins along all stages of the distribution channel should be reviewed with the
companys strategy i.e. generate strong push on Disposable blades and make them more attractive
to retail and wholesale.

Communications:
Communication objectives in 1996 should be mainly:
- Expand market horizontally. based on the brand funnel above,expansion trought educating males
who shave to switch to store-bought blades will generate more consumers and accordingly higher
ROI.
- Upgrade current consumers to buy higher value products and shaving systems.
Budget should be split equally between the two objectives as follows:
- Gillette should work on advertising (through TV and Newspaper) Disposable blades and highlight
price and product benefits to consumers.
- 25% of communication budget should be allocated to promote Gillette products to rural area
consumers.
- Consumer promotions on Disposable and System blades.
- Trade promotions for wholesalers to achieve better display and sales growth per product category.

Answering two Discussion Questions:

Should Gillette consider womens razor products?
-

No, not in 1996. This year is very busy with strengthening distribution channel and changing Gillette
product mix and no need to launch a minor product line without clear understanding of its market,
especially if its imported and any problem in customs clearance could impact the entire
manufacturing cycle (as mentioned in the case).

Impact of Gillette operations in neighboring countries on Indonesia plan:

If Gillette expansion is aggressive in any of the neighboring markets, it will directly affect Gillette
operations in Indonesia. This is mainly because coastal areas are usually far away from company core focus and
they are vulnerable to parallel market caused by illegal imports from neighboring market either of Gillette
products or those of competition. The mentioned will affect Gillette in the following ways:
- Decrease the ability to meet demand in rural areas due to high competition from cheaper brands.
- Pricing: Gillette will need place extra discount to maintain market share in coastal areas, which will
immediately affect the whole Indonesian market.