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April 25, 2017

Subscription razor upstarts: forcing a course correction

Razor users know that if you cut yourself shaving, you need to stop the bleeding. Razor giant Gillette is learning the same lesson. Tom Vierhile, innovation insights director at GlobalData, reports.

By GlobalData Retail

Razor users know that if you cut yourself shaving, you need to stop the bleeding. Razor giant Gillette is learning the same lesson. After six consecutive years of US market share losses, Gillette recently announced a razor price cut of as much as 20% and a renewed focus on cheaper products to try to turn things around.

You can bet that Procter & Gamble did not pay $57bn for razor giant Gillette back in 2005 with the expectation that its core razor and blade business would see market share shrink like a polar ice cap.

Yet that is precisely what has happened over the last half decade or so as consumers have flocked to subscription razor upstarts like Dollar Shave Club and Harry's. Gillette's traditional strategy of launching more sophisticated (and expensive) razors and trading consumers up to them from cheaper versions may have worked too well, creating a price/value gap that upstarts were able to exploit.

"People trust that our pricing is fair" says Harry's co-founder Jeffrey Raider, as quoted by The Wall Street Journal . "There is significant pent-up frustration among guys that Gillette has been methodically overcharging them for decades," he goes on to say.

Jeffrey Raider was able to parlay this feeling into a base of three million subscribers for Harry's. Dollar Shave Club did even better as the target of a $1bn acquisition by fast-moving consumer goods giant Unilever in July 2016.

On April 1, Gillette countered by cutting the prices of its shaving products for men and women by as much as 20%. Across its razor and blade lineup, the company is phasing in an average discount of around 12%. Price cuts include flagship offerings like Gillette Fusion.

But is it too little, too late? New GlobalData research suggests that the subscription retail tide is unlikely to ebb anytime soon. A majority – 55% – of 25–34 year-old Americans say that they currently purchase beauty and grooming products via subscription, according to GlobalData's Q1 2017 consumer survey. That is over nine times the percentage of 55–64 year-olds who say the same thing.

Gillette's shelf dominance is rendered moot by an internet where competitive options are a click away. The brand is also hampered by a distribution model reliant on middlemen (i.e. retailers). Gillette arguably knows less about its actual purchasers and users than subscription retailers like Dollar Shave Club or Harry's, which collect purchase and usage data directly from their respective subscriber bases.

Look for the razor battle to sharpen in the coming months. Gillette recently launched a "Welcome Back" marketing campaign and website geared toward winning back consumers lost to subscription upstarts. Gillette claims that over 200,000 consumers have "come back to Gillette." The brand hopes to speed that up by encouraging consumers to upload photos and videos explaining why they "came back" to its products.

"Welcome Back" also reasserts Gillette's position as an innovator with feature-by-feature comparisons between its flagship Gillette Fusion ProShield razor and products from Harry's and Dollar Shave Club. The former is dissed for its "80s technology blades" while the latter is claimed to cause more razor burn and irritation than Fusion ProShield.

With a patent in the works for a razor cartridge that heats up, Gillette is not trying to abandon cutting-edge innovation. But are Gillette and other FMCG giants ready to more tightly embrace direct-to-consumer marketing? With 57% of 25–34 year-old Americans saying that they currently purchase beauty and grooming products directly from brand websites – according to a GlobalData Q1 2017 survey – they may find that they have no choice.