16/2017 – The world of marketing is changing fast… Are you?
by Tan Thiam Hock
Saturday, 9 September 2017
I started my first business importing razor blades from India when I was barely 25 years old. Well, to be more precise, 24 and ¾ years old. Without any experience, I plunged into a distribution battle with the biggest razor blade company in the world, Gillette.
Looking back to 1985, I was pretty confident then, with a low priced Topaz stainless steel double-edge blade that was taking market share from Nacet Super Stainless (Gillette low-priced brand) and the potential of a very-low-priced systems twin-blade cartridge going against Gillette G2 premium blades. Armed with fresh knowledge of 4P’s in marketing, I applied my theoretical strategies in text book fashion against one of America’s most successful marketing company.
Product – segmented and matched – double edge versus double edge, systems versus systems and disposables versus disposables. Checked.
Price – 30%-40% lower for each product segment. Checked.
Place – distribution through wholesalers for mass consumption double-edge market. Systems and disposable razors through Chinese medical halls, pharmacies, mini markets and supermarkets. Checked.
Promotion – consumer contest for mass selling Topaz, prizes like Honda Cubs, Toshiba Boombox etc. Small display stands for mini markets and full floor display stands with hooks to merchandise carded system blades in supermarkets with a basket to hold packs of Disposable 5’s. Checked.
Gillette reacted like what market leaders do. They sent me a legal letter saying that my Indian system twin blades violated their patented trade mark design. I had to backtrack and asked my Indian manufacturer to apply for payment of royalties.
For those outlets where we successfully put in our display stands, many of our hanging carded system blades were torn from the hooks and our sales staff had to mend the card with cellophane tape and you can imagine how ugly our displayed products look like. We also found Gillette disposable pouches stacked on top of our disposable pouches in our display baskets. That was the golden era of human merchandisers being used to activate marketing strategies.
Gillette went to the supermarkets and modern trade of that time and signed them up on exclusive retailing of Gillette razor blades only by offering an additional 5% profit margin. Their rationale was that since 80% of razor blade sales in their stores were Gillette products, the 5% additional margins on 80% of sales were more than enough to cover the loss of 20% sales of other brands. This campaign was so successfully implemented across the nation that other competitive brands like Schick and Wilkinson Sword practically vanished from the marketplace for a few years. Legally speaking, 30 years ago, there were no Anti Monopoly Act or Fair Trade Rules.
I had to withdraw from the razor blade business, tail between my legs but luckily I was able to pivot into a national distributor business for consumer goods. It was and still remain my most humbling experience in my marketing journey.
Then back in 1994, after selling our share in the distribution company, I restarted my trading company and again, I went back into the razor blade business. Now older, heavier and wiser, I avoided a head-on fight with Gillette. Staying out of the systems market where Gillette makes its most profits, I focus on a single product – twin blade disposable razors on a hanging card retailing each razor for one ringgit with high margins for retailers and wholesalers.
Keeping my overheads low (one staff only), I engaged Yeo Hiap Seng Trading to help me distribute direct to the grocery shops and mini markets. YHS at that time had the biggest direct sales team as their soft drinks and canned food division covers the entire national retail census. Gillette ignored me this time as I did not threaten their golden egg – the high margin system blades which had gone triple blade by then.
It was a pretty successful exercise for me as I sold more than two million disposables a year at its peak. And then I discovered the beauty of the cosmetic business and I pivoted again.
All over the world, Gillette has maintained its supremacy in the premium high-margin blade business and they were finally acquired by Proctor & Gamble in 2005 for US$57bil. It was a marriage of two marketeers – one that knows about men and the other that knows all about what a woman needs.
Then last year, Unilever bought Dollar Shave Club (DSC) for US$1bil. DSC is a 4-year-old startup doing online supply of system blades to male consumers in the US. Based on a subscription model, razor blades are delivered to homes. With investor funding, DSC acquired more than three million customers in four years via online sales, avoiding Gillette’s traditional distribution stronghold of brick-and-mortar pharmacies and hypermarkets.
To Unilever, DSC was a great opportunity to get into the male grooming business via an alternative distribution channel avoiding a costly battle with the market leader in that category. It is also a steep learning curve for the traditional marketeers of brick-and-mortar retail distribution. Only time will tell if this alternative distribution channel can be a profitable business model.
Entrepreneurs should not be afraid to explore alternative solutions in delivering products and services. Whether it is Amazon or Walmart, it is all about delivering the right products or services to satisfy the needs of the consumers at the lowest possible price.
Marketing 101 has never changed despite all these Hoo-Ha on online e-commerce. Marketeers have to understand that the 4P’s have evolved. Consumer consumption habits have also evolved through different generations. Technology is enabling direct transactions and direct communications with consumers. Efficient logistics reduce the need to step out to shop for necessities.
The world is changing fast… Are you?