P&G Innovates on Razor-Thin Margins

Wednesday, April 18, 2012

By Vijay Govindarajan

If you shaved today, either in the U.S. or in India, you probably used a Gillette razor. Gillette (now a brand of P&G), reportedly has had a U.S. market share of more than 80%, with Schick a distant second. Even more remarkably, they achieved this without resorting to price competition. The blade cartridges for its latest-and-greatest razor, the top-selling Fusion ProGlide, retail for around $4 each, leaving Gillette with what must be incredibly lucrative gross margins.

But that is not the story in developing markets, where these top-of-the-line products don’t fare nearly as well. So how is it that Gillette has over 50% market share in India — the world’s largest shaving blade market by volume? And with a product that costs less than 3% of the Fusion ProGlide? This is an excellent story of reverse innovation in action…but the story has only just begun.

It starts as most such stories do — with a Western-based company trying to sell their cheapest products in emerging markets. In India, Gillette historically focused on selling their lower- and mid-tier American razors such as the Mach 3 in new packaging. But the vast majority of men below the pinnacle of the social pyramid, an estimated 400 million, still shaved with double-edge razors, a century-old technology that tends to cause far more cuts and bleeding. The fact that Gillette’s global products failed to address billions of emerging markets’ low-income consumers wasn’t seen as a major problem at Gillette, so long as growth in its core markets was robust. But dominant market share creates its own growth challenges.

Source: Harvard Business Review (link opens in a new window)