Gillette Indonesia - Case Study 1. Current Situation and Trends 1.1. Market 1.1.

1 Definition, Size and Growth Broad - Personal Grooming Products Narrow - Shavers, including double-edged blades, disposables, and systems blades Gillette expects to sell 108m units of double-edged blades, 10m units of disposables and 18m units of systems blades. Gillettes market share is expected to be 50% in 1996, so there is an existing market of double-edged blades of 116m. The >$10k income bracket has grown by 30%, the $5k-$10k bracket by 15% and the $2k$5k bracket by 3%. The only bracket to reduce in size is the <$2k bracket, decreasing by 15%. Also the incidence of shaving is increasing, and lacks far behind that of Hong Kong. This evidence suggests that the shaving market is in the early stages of growth on the Product Life Cycle. 1.1.2 Structure Rivalry - Low Gillettes market share is expected to reach 50% in 1996. Having such a strong monopoly results in a high concentration ratio, signifying low rivalry. Threat of Substitutes - High, moving to Med/High There is a strong threat of substitutes coming from the use of wet or dry knives, however as Indonesia becomes more westernised this is expected to decrease. Buyer Power - Low As Gillette has such a large portion of the market, buyer power is comparably low. Supplier Power - Medium/High As a result of financial constraints from buyers, Gillette is limited in what they are able to charge, moderating their power within the market. Threat of New Entrants - High The market being quite new results in a high threat of new entrants, especially when the market is experiencing such growth. Also double-edged blades are quite simple devices, and thus the set-up costs for their manufacture would be comparatively low. 1.2. Environmental

Indonesia is a highly separated country, both geographically and culturally, making distribution difficult. Indonesia also has a growing balance of wealth, and growing centralisation of population. Foreign investment has recently been liberalised. Regulation forces products sold to be produced locally to some degree, preventing the adoption of more efficient imported products. 1.3. Competition Double-edged Blades - imported inferior products from Eastern Europe and China. Tatra, Super Nacet, Tiger. Disposables - Bic (US), Bagus (local) - low sales volumes Premium - Schick - Gillette has a 90% market share in this product segment 1.4. Customers Gillettes direct customers are distributors, however Gillette has always focused on derived demand, the increase of demand from end-users to increase demand from distributors. For this reason, end-users have been focused on as Gillettes customers. In the Indonesian market, Gillettes market is males over 18, especially College students and graduates entering the workforce. 1.5. Internal Gillette Indonesia has decreased production time from 7 days to 3, however the addition of line capacity has been delayed and will result in overtime being required. Problems with customs clearance, relating to Gillettes womens razor, could impact the entire manufacturing cycle. 2. Key Issues Strengths 50% Market Share 97% Brand Awareness, and 55% brand most used ratings Weaknesses 19% volume increase in market that has increased approximately 30%. Inability to meet demand for the coming year, until the new capacity is implemented Opportunities Capitalise on growth of income within Indonesia to increase sales Increase demand for higher end, higher margin products Threats Lower priced products, more suited to the Indonesian income brackets, stealing market share 3. Objectives

Gillettes Indonesian objectives are to increase the Indonesian market for blades, while maintaining profit growth. 4. Problem Analysis Gillette has recently increased prices to maintain increases in profit, but this has resulted in a 2% growth of unit sales in the face of a market share that is increasing in the order of 30%. Promotion does not appear to be of a concern, as they have 97% brand awareness, while they certainly have some production issues these appear to be in the process of being solved. Gillettes distribution solution doesnt seem to have any major problems, leaving only price as the problem element of the current marketing mix. Gillettes position seems to be one of waiting for the customers to earn enough money to purchase their products, paving the way for a clever competitor to steal market share. 5. Alternatives 5.1. Cut Costs & Reduce Prices 5.1.1 Costs and Benefits Gillette currently has a gross margin of 46%. Reducing prices by 10% would result in a reduction of profit from operations from 20% to 10%. However, if costs were reduced by giving less trade discounts and reducing advertising to 6%, net profits could be stabilised at approximately 18%. This 2% loss represents a $640,000 loss if present unit sales were met. It is proposed that this 10% reduction in price will result in an increase of sales of approximately 5%, representing an increase in profit of $900,000, and an increase in market share of 5%. If this alternative were to be successful, more severe cost reduction mechanisms and price reductions could be introduced in the future. 5.1.2 Competitor Reactions As Gillettes products will still be priced far above the main competitors, it is unlikely that competitors will see this as a major threat at this time. However, as discussed previously, the threat of new entrants is very real, and this move will not be drastic

enough to eliminate the threat of not meeting the pricing needs of the target market. 5.1.3 Time Horizon The introduction of the new pricing scheme and reduction of costs involves no major changes in the companys structure. Two weeks should be enough time for management to finalise the changes, which would likely be phased in over the folllowing month. 5.1.4 Congruency with managerial predispositions Gillette prides itself on its brand name and advertising selling its product, instead of competing based on price. This strategy may not sit comfortably with management, however management must realise that no matter how valued the Gillette brand is, the Indonesian economy is not in a state where western brand name concepts can be fully exploited. 5.2. Increase Promotion The alternative is to increase promotion, as proposed by Effio. 5.2.1 Costs and Benefits It is suggested that if the promotion budget were to be increased from its current 12%, to 15%, that sales would increase by 2%. This hypothesis is supported by the reasoning that the market grew by 30%, yet Gillettes unit sales only increased by 19%, representing an 11% loss of customers had Gillette not changed its pricing. Furthermore, Gillette is already 55% of the populations most preferred brand, therefore an increase in promotional spending may increase this somewhat, and also increase Gillettes brand awareness by another percent, but this would not result in a large increase in sales. This alternative represents an expenditure of $966,000, and an increase in gross profit of $360,000 - a $606,000 net loss. 5.2.2 Competitor Reactions As Gillettes competitors in the Indonesian marketplace are low end, whom exist to fill the need of customers who cannot afford Gillette products, an increase in spending on promotion would likely not be of concern to competitors, whos competitive advantage lies in price.

5.2.3 Time Horizon The compilation and execution of the increased promotional budget would be expected to take no longer than a month to begin having an effect on Gillettes customers. 5.2.4 Congruency with managerial predispositions As it is management that is suggesting this alternative, it is expected to be very congruent with their predispositions. 5.3. Do Nothing Opting to accept the current marketing plan and continue with it will allow Gillette to float on the growth of the marketplace, providing that no competitors enter to fill the needs of unsatisfied customers. As growth of the marketplace is somewhere in the order of 30%, it is likely that Gillette can expect similar growth providing that the other elements of the marketing mix remain the same. However, doing so leaves Gillette Indonesia vulnerable to the threats outlined in the above SWOT analysis. 6. Recommended Strategy As 5.1 Cut Costs & Reduce Prices results in both increased profits and increased market share, it is the alternative that is suggested. It should be noted that the success of this alternative is dependant on the assumption that the lack of growth experienced by Gillette was primarily caused by the increase in price, and not be another factor. Fortunately the alternative suggested is not drastic, so its benchmarking and control can be performed in an environment with reduced risk. This alternative also involves the reduction of costs, the details of which have not been outlined in this report, but will need to be executed to ensure the increased profitability of the alternative.