The market leader Gillette is owned by Procter and Gamble, and is currently being investigated by the Office of Fair Trading as their blades can be produced for 5p and are sold for up to £2.43 each. http://www.dailymail.co.uk/news/article-1191456/Sharp-practice-The-razor-heads-cost-just-5p-make-sell-2-43-each.html Gillette have a reputed 72% of the world market (2003) worth
Whilst in Sainsbury's the other day I noticed this and also noticed the cheaper alternative made for Sainsbury's and gave them a try. Whilst cheaper the result was both painful and ineffective.
This is the sort of situation that spawns "men in sheds" inventing a better solution. Gillette allegedly spent £680m developing the Mach3 blade. Surely it is possible to develop for cheaper in your shed.
http://www.prdpartnership.com/giraffeinmyshed/ explores the idea that many inventors or would be entrepreneurs get locked into a particular idea. In this situation we would call this an elephant. Why? Well there were a few books written about large companies and elephants a while ago (e.g. Teaching elephants to dance - Rosabeth Kanter), where the elephant was a large lumbering giant. Simply put - if you invent an "elephant" type product or service you should think very carefully before doing battle with the likes of Gillette and Procter and Gamble.
Our simple advice is to think more about Giraffes! Think a little bit differently, and possibly not to go for the centre stage wide part of the market, but for a little bit, possibly that others are not interested in, or cannot make work. Why? Simple risk reduction. Yes your profits and revenue get reigned in - but unless you are that "special" person that Schumpeter said was necessary to harness all the resources necessary to make Creative Destruction happen - then your chances of success may be small.
Consider the razor blades. Why is it that Sainsbury's have a blade that doesn't work very well?
- Their R+D team don't shave
- They don't want to have repeat customers
- A very lazy buying team
- They cannot get round the Gillette patent
- Proctor and Gamble are bigger than Sainsbury's
Possibly the last 2 have more to do with reality than the first 3.
The first problem therefore is one of protection. The razor blade market is one of the most heavily patented, with over 1000 patents existing. Gillette filled over 100 patents for the Mach3 system. Procter and Gamble also have lawyers. They will protect their territory be it patent, trademark, or even slogan "shave yourself" or "the best a man can get".
Creative destruction challenge: Can you produce something that not only doesn't infringe on an existing patent, but one that is not going to attract attention from the likes of Proctor and Gamble's lawyers. Can you afford to fight them?
The second problem is one of market power. The market was valued at $7.5b in 2003 and 72% of that is worth having. Even if you get round the lawyers - where are going to sell your product?
Creative Destruction challenge - Can you get it on the shelves at Sainsbury's? It would be nice if it was in an obvious place with attention drawn to your branding.
The third problem lies with the consumer. Gillette advertise heavily. when they introduced the Mach3 they spent between $100m and $300m on the launch. In addition there is the business model that Gillette invented back in the very early 20th century of giving the razors away, but making profit on the blades. The razors are propriety, and so will only work with the right blades, protected by patent. This combination gives rise to strong consumer loyalty, and Gillette have had a 10 year head start on the Mach3 and over 100 years head start since they started.
Creative Destruction challenge - how do you get the consumer to change their habits and buy into your system? What resources will you need?
Whilst in a fit of frustration in Sainsbury's the market is in desperate need of competition, there isn't a good cost effective shaving solution out there at the moment, solving the problem is not simply coming up with a new razor. There are many other challenges, each of which requires resources and possibly experience. Whilst there might be a James Dyson out there somewhere who can take on the likes of Hoover and win, it is a daunting and expensive challenge.
Why are razor blades so expensive?
Gillette would say that they have spent a lot of money on advertising and on R+D. In addition they do have a few lawyers. The key fact is that the market is uncompetitive and sewn up by Gillette. We all want to make a little profit, hats off to them for achieving it over such a long time period.
In terms of Creative Destruction, Schumpeter was doing his research in the 1930's and would have been studying companies like Gillette. Born in 1855, King Camp Gillette was standing before his mirror, ready to shave, when he realized that the Star razor in his hand was useless. "It was not only dull," Gillette would write later, according to his biographer Tim Dowling, "but it was beyond the point of successful stropping and it needed honing. As I stood there with the razor in my hand, my eyes resting on it as lightly as a bird settling down on its nest, the Gillette razor was born."
It took him five years to find someone who could provide a machine that would automatically hone thin sheets of steel to the required sharpness, and at first the blades sold for less than they cost to make. Undaunted, Gillette forged ahead and eventually had a second epiphany: He would give away a razor and sell the blades. By 1910 Gillette dominated the razor business, and its founder was a millionaire.