Gillette Indonesia

CLN Case Study AnalysisGillette Indonesia

2 Gillette Indonesia

Contents

Executive Summary 4

Introduction 6

External Environment 7

Situation Analysis 8

Financial Performance 11

Critical Success Factors 12

SWOT Analysis 14

Marketing Plan Recommendations 15

Conclusions 16

Implementation Plan 17

Appendix 1: PESTLE Analysis 18

Appendix 2: Product Details 19

Appendix 3: Financial Performance 20

References 21

3 Gillette Indonesia | CLN Case Study | – Group 5

1 Executive Summary

The aim of this report is to recommend a marketing strategy for Gillette Indonesia.

These recommendations will allow Gillette to realise its mission of achieving

worldwide leadership in its core product categories. The company's approach “think

global, act local” has enabled Gillette to capture a significant proportion of the blade

sales market and enjoy strong brand recognition (48% of market share for blades and

90% of the premium priced segment) (Quelch & Long 1996).

Gillette’s differentiated marketing strategy; persuading consumers to shave for the

first time; increasing incidence of shaving among existing shavers; and, trading up

shavers, appear to be very effective with a 9% increase in sales 1990 - 1995.

Strong economic growth of over 7% in the last 20 years in Indonesia has increased

per capita incomes and improved standards of living. With a population of nearly 196

million, Indonesia represents a significant market for Gillette in the Asia-Pacific region.

Efforts to increase market share presents a few challenges:

• affordability - 80% of the population earn less than $10,000;

• shaving rate - incidence of shaving is low compared to developed countries

(Indonesian shave on average 5.5 times per month compared to 12 times per

month in Hong Kong and 26 times in the United States); and,

• regulation - restrictions on foreign companies and poor infrastructure impede

the sales and distribution effort.

An effective marketing strategy will allow Gillette to exploit the opportunities the

Indonesian market represents and gain the first-mover advantages.

This report, therefore, proposes the following:

• Adopting value proposition utilising the 4P’s for all market

segments (McCarthy 1960).

• Continue to grow the brand through up-selling, cross-selling and first mover

initiatives particularly in the largely untapped 66.8 million female market.


• Adoption of a comprehensive marketing plan based on segmentation,

targeting and positioning to increase the 5.5 shaving rate amongst the urban

adult male segment and create on-going value through long-term customer

relationships.


2 Introduction

Gillette established it operations in Indonesia in 1971 to further expand its Asia

Pacific operations with a particular emphasis on providing cost effective

manufacturing and exploiting the first-mover advantage in various under-utilised razor

shaver markets within the country.

Empirical data from the U.S. Department of Commerce identifies Indonesia as a ‘Big

Emerging Market’ having the largest GDP in Southeast Asia being 7% (South Florida

Business Journal 1996).

In line with Gillette’s mission to achieve worldwide leadership in its core product

categories, Gillette’s Asia-pacific business director would like to target a 25%-30%

increase in blade sales in Indonesia in 1996, by increasing the investment in

marketing.

The objective of this report is to evaluate how the desired sales targets can be

achieved by investing in marketing beyond the 1995 level.

This report:

considers how demand can be increased for a consumer product in an

emerging market;

suggests the appropriate product line mix and allocation of marketing

expenditures for each stage of market development; and,

recommends a marketing plan to achieve the desired outcome, including

income projections to support the plan.

CLN Group 5 has been engaged to implement the fundamental marketing tools to

identify how Gillette can increase its market dominance in Indonesia and protect the

company from potential emerging rival threats.


3 External Environment

With the implementation of the proposed marketing plan in Indonesia, Gillette will

need to consider the external environment it is operating in if it is to stay ahead of its

competitors (Mason, R. 2007, p.16).

Indonesia’s demographics make distribution challenging for Gillette. Strict

government regulations limit foreign companies from importing or distributing their

products (Quelch & Long 1996, p. 363).

(Source: Indonesia-map Aegis.com 1996)

The Indonesian President oversees all major economic developments and changes in

domestic policies and tax reform. Gillette Indonesia must ensure that its business

plan and marketing strategy takes into consideration the current political sensitivities

which may reflect future political instability.

The Indonesian Government encouraged a high export rate with the Foreign Direct

Investment (FDI) in 1994 at $23.7 billion, up from $826 million 8 years prior.

Indonesia’s FDI is expected to grow to 74% as of 1996 (Quelch & Long 1996, p.

363). Up to 2 million people are entering the workforce every year providing the

Company with an ability to attract high quality employees for its local operations

(Quelch & Long 1996, p. 363).


4 Situation Analysis

Mac r o- E nv i r o nm en t

Company

Gillette Indonesia commenced in 1971 with majority ownership in a joint venture with a local company. The Company built an automated manufacturing plant with 68 full- time and 75 casual workers near Jakarta of which 65 of the 75 products were shaving related. In 1995, Gillette produced 150 million blades and exported 46 million generating US$23 million in sales (Quelch & Long 1996, p. 359).

Razor products are segmented into three categories (refer to Appendix 2):

1. Doubled Edge Blades2. Disposable Blades3. System Blades

Customers

Indonesia has 40 million adults over the age of 18 as the primary consumer market

who shave, on average, only 5.5 times per month using the low-end Gillette products.

With growing Western-based influences and an increasing multi-national workforce,

an increase in the number of shaving customers is expected - although Asian beards

do not grow as fast as Caucasian or Latino beards. According to Quelch & Long

(1996, p.359) only 4% used shaving foam or lotion; 25% used soap and water; 12%

used water alone and 58% shaved dry.

Competitors

In the double-edged razor category, the Company’s main competitors come from

Eastern Europe and China with imported low-end, doubled edged blades; Tatra,

Super Nacet; and, Tiger/Cap Macan. In the disposable market, BIC from the United

States and locally produced brand, Bagus, are the competitors. Schick is the main

competitor in the high-end razor products.


Collaborators

As a foreign company facing strict import regulations, Gillette Indonesia had to move

from an initial single distribution model to multiple distributors throughout the country

increasing sales by 60%. However, much of the Company’s focus has been to

market directly to supermarket chains representing only 5% in shaving sales and 8%

in value (Quelch & Long 1996, p. 365).

Context

The PESTLE analysis has determined that strict government import regulations and

cultural diversity to Western views play an important factor in market supply and

acceptance.

M i cr o - E nv i r on m en t

From a micro-environmental view as detailed in Porter’s 5 forces model (1980, p.4),

the competitive advantage depends on the interaction of the five specific structural

forces identified below. Gillette Indonesia’s competitive advantage (as the dominant

company) may be under threat by its main rivals in both the doubled edged and

disposable markets should BIC, the Eastern European, and Chinese rivals focus on

the substantial low-end urban population.

(Source: Fathoming Porter's five forces model in the internet era 2005)


Entry Barriers

Gillette Indonesia has a commanding lead in market share over its competitors

(Quelch & Long 1996, p. 383) with 97% of males aware of the product brand and the

Gillette’s Coal Red blade being the most popular amongst 55% of the population.

Rivalry

US-based BIC; the Chinese; and, the European brands represent the most likely

contenders for market share in the low-end blades. Schick is considered to be the

major contender in the premium razor market.

New Entrants

There are no known new entrants in the Indonesia markets at this stage.

Buyers

The main customers are urban males over the age of 18 of whom there are 40 million

in Indonesia of which 80% shave an average of 5.5 times per month (Quelch & Long

1996, p. 359).

Suppliers

Local suppliers provide the Company with basic raw products including ammonia to

the Indonesian production plants. Gillette has had to import cartridges and handles

for the razors due to local distribution and transportation difficulties.


5 Financial Performance

Between 1990 and 1995, sales (2 million) grew by 9% annually, net income by 17%

and earning per share by 18%. 9% of the gross sales were spent on Gillette's

advertising and 3% on consumer promotions (Quelch & Long 1996).

(Source: Quelch,J. Long.D, 1996 p. 362)


6 Critical Success Factors

Short Term (< 5 years)

Product Quality

Gillette will need to ensure that product clones, or competitor products, will not match

the build quality of the Gillette razor. All products are to be of the highest production

quality. This will ensure that the new and existing customer base continue to

experience the highest quality shave from the Gillette products.

Up-Selling and Cross-selling

Gillette intends to shake-up the existing grooming market. Gillette currently has a

large customer base in the low-to-medium end of the razor market with 87% of all

sales in Indonesia comprised of the lower-end double-edged blades. Gillette will

cross-sell by promoting the values of other products in the range. 15% growth in the

non-blade market in the short term is the target.

Gillette will up-sell by proving the values of the higher-quality blades in its range.

Growth of 20% should be achieved in the system blades range of products.

Long Term (10 years)

Revenue Growth

Market penetration and market growth is a major factor in Gillette’s long term

strategy.

Growth will be achieved through the following initiatives:

Product sales increases of 10% p/a. From current year-end sales figures, this

will amount to $US 49.3 million at the end of ten years.

Non-blade shaving product growth to increase by 10%p/a.

Penetration into the women’s shaving market by targeting growth of 10% p/a.

First mover advantage coupled with targeted marketing will allow Gillette to

deeply influence this market segment.

Product Development

Gillette’s product offerings in Indonesia are predominantly focused on the men’s

razor line, currently accounting for some $19.6 million in total sales. Gillette will

expand its product line in the next ten years by introducing more products into the

range. This will include a greater range of choice into the existing shaving product


suite. Also marketing aimed at shaving creams and balms to complement existing

offerings will be introduced.


7 SWOT Analysis

Strengths

· Brand awareness and association with

high-quality blades

· 48% of market share for blades and 90%

of the premium priced segment

· Product differentiation allows Gillette to

target different segments of the

population

· Manufacturing plant is highly automated,

with efficient business processes

Weaknesses

· Distribution issues including limited

control over the distribution channels,

weak communication networks, poor

traffic conditions and lack of distribution

service technology

· Manufacturing capacity – scope to

improve productivity is currently limited

· Cultural practises impacting employee

productivity and partner (distributor)

relationships

· Global marketing emphasis not suitable

for the Indonesian market

Opportunities

· Population of nearly 200 million

· Strong economic growth - average annual

Gross Domestic Product (GDP) growth of

over 7% for more than 20 years has

manifested in increased per capita

incomes and improved standard of living

· Liberalisation of foreign investment

· Shaving is still underdeveloped, but the

incidence of shaving is increasing

· Women’s shaving market in the initial

stages of development

Threats

· Affordability - approximately 80% of the

population earn less than 10,000

· Competition from cheaper brands.

Gillette’s retail prices were sometimes

four times that of the competitive

products

· Cultural influences – low incidence of

shaving

· Grooming products regarded as luxury

items by many

· Government regulation prohibits a

foreign company from directly importing

or distributing its products


8 Marketing Plan Recommendations

The overall marketing strategy identified in Table 8.1 is focused primarily on the low- end blades market (80% of the population) with an affordable product and an expectation of upgrading these customers to higher premium products in line with the anticipated increase in economic growth.

The marketing mix also reflect the process of dividing the potential market into distinct subsets of consumers with common needs or characteristics and a selection one of more targets possessing a distinct marketing mix (Schiffman et al., 2001).

Table 8.1

Recommendation One

The Company adopts a comprehensive marketing campaign utilising the Segmenting, Targeting, Positioning model (Kotler et al. 2000, p.12) in the double- edged, disposable, and system blade product markets particularly in the low-end adult male and largely untapped female shaver market segment.

Recommendation Two

The Company implements a value proposition utilising the 4Ps for a l l market segments (McCarthy 1960) to adapt its product and marketing program to the needs of a specific customer or buying organisation, in particular the 15+ age female 66.8 million population with its women’s razor (CIA’s World Fact Book, 1996).

Recommendation Three

Gillette Indonesia investigates the Company’s Hong Kong marketing-mix model. (Indonesian shave on average 5.5 times per month, compared to 12 times per month in Hong Kong) Given its geographical and cultural similarities, Hong Kong representsan ideal 4Ps model following its improved economic growth outlook.


9 Conclusions

Gillette is the world leader in blades and razors. Gillette intends to remain the global market leader in the razor and blade arena. Gillette will undertake a market growth campaign based on strategic marketing, targeting and consumer education.

In summary, Gillette will -

- Continue to grow the brand through up-selling, cross-selling and first mover

initiatives.

- The adoption of a comprehensive marketing plan based on segmentation,

targeting and positioning.

- Create a value proposition utilising the 4P’s for all market segments.

16 Gillette Indonesia | CLN Case Study | – Group 5 prote

10 Implementation Plan

The aim to increase sales by 25-30% will also see an increase in the advertising

spending. The advertising budget will increase 12-20% in comparison to 1995 as

reflected below.

Table 10.1

A. Im p l e m e n t a t i on 1

• Mass marketing appeal aimed at women in Indonesia to educate them in the

‘art of shaving’.

o Using leaflets that demonstrate how to shave marketed to women.

o An increased focus of advertising expenditure to be allocated at the

women’s market over the next 12 months.

o Gillette razor promotional stands to be located in supermarkets and

urban kiosks to provide free samples and marketing information

targeting females.

• Aim to increase sales by 100-200%.

B. Im p l e m e n t a t i on 2

• To help increase the usage and sales of shaving creams and foams, free

sampling of the products and learn-to-shave classes that can educate the

benefits of shaving with creams and foams.

o The samples can be distributed through the super markets,

Universities, and even at workplaces.

o There will also be free sampling stands at the supermarkets for

customers to experience first-hand the benefits.

• Aim to increase non-shave product sales by 15%.

C. Im p l e m e n t a t i on 3

• Use multimedia and print advertising to increase the shaving frequency

(presently 51%) (Quelch,J. Long, D. 1996 p. 360) targeting customers who

shave less than once a week.

• Increase appearance grooming education in the corporate workplace.

• Target customers with marketing campaigns who shave less than 10 times per

month in a bid to increase the shaving frequency rate to 50%, thereby

increasing product demand.

• Have a local celebrity identity be the ‘public face’ for Gillette in Indonesia.


Appendix 1: PESTLE Analysis

PoliticalFor the past 30 years, Indonesia’s political system has

been led by President Suharto who oversees all major

economic developments and changes in domestic

policies. This presents a political dilemma for Gillette

should the political power shift to an opposing party.

(Quelch,J. Long, D. 1996 p. 363)

EconomicThe Indonesian Government encourages a high export

rate to aid the existing high population growth rate to

increase the nation’s employment prospects. Foreign

investment in Indonesia for 1994 has risen to $23.7

billion, up from $826 million 8 years earlier. In 1996

Indonesia’s FDI is expected to grow to 74%. There are

approximately 2 million people entering the workforce

every year with 80% of the population obtaining an

annual income of < $10,000 per year. (Quelch,J. Long,

D. 1996 p. 363)

SocialP o pu l a t i o n - 196 million

P o pu l a t i o n d e m o g r a ph i c s

Indonesians are spread across 15,000 islands with 35%

living in towns and 65% living in rural areas. 60% of

Indonesians live on the islands of Bali and Java.

(Quelch,J. Long, D. 1996 p. 363)

TechnologicalManufacturing improvements in 1995 saw increases of

57% in productivity reducing the time to produce their

blades (Quelch,J. Long, D. 1996 p. 363)

LegalThe President of Indonesia oversees all legal reforms.

Regulations prohibit foreign companies like Gillette

from importing or distributing their products. (Quelch,J.

Long, D. 1996 p.363)

EnvironmentalIndonesia has environmental legislation as of 1996

dealing with disposal of waste products resulting from

manufacturing (e.g. ammonia).


Appendix 2: Product Details

(Source: Quelch,J. Long.D, 1996 p. 363)


Appendix 3: Financial Performance

Gillette Indonesia Sales breakdown 1995

(millions)

1996

(millions)

1996

% growth

Shaving products total sales

Blades$10.3 $11.2 9%

Disposables$1.2 $2.5 108%

Sensor$5.6 $10.4 87.51%

Razors$2.0 $3.0 50%

Prep Products$0.5 $0.5 0%

Non-Shave products$2.0 $2.3 15%


References

Central Intelligence Agency, Fact Book, 1996, available from h t t p :/ / w ww . u ms l . ed u/ s e rv i c e s / g o v do cs / w o f a c t 9 6/ 1 2 3 . h t m (viewed 20th March, 2010)

‘Country Snapshot’ 1996, South Florida Business Journal, vol. 2, November 8, p.1. Retrieved March19, 2010 from h t tp: / / www . p r o q u e s t . c o m .e z p r o x y . l ib . r mi t . ed u . a u .

Fathoming Porter's five forces model in the internet era [Image] 2005. Retrieved March 19, 2010 from h t t p :/ / w ww . e m e r al d i n s i g h t . c o m / f ig /2 72 007 06 05 0 0 1 .p n g

Indonesia-map [Image] 1996, Retrieved March 19, 2010 from w w w . aegi s . c o m / i m ag e s /f l a g s /In do n e s ia - map.jpg

Kotler, Adam, Brown & Armstrong 2000, Principles of Marketing, Prentice-Hall, Sydney.

Mason, R. (2007). The external environments effect on management and strategy; A complexity theory approach. Management Decision, Vol 45, 1, p. 10-28.

McCarthy, J.E, 1960, Basic Marketing: A Managerial Approach, Richard D. Irwin, Homewood, IL.

Porter 1980, Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free PressNew York.

Quelch, JA & Bartlett CA, 2006, Global Marketing Management: A Casebook, 5th

edn, ThomsonSouth, Western Australia

Quelch, JA & Long, DE, 1998, Gillette Indonesia, Harvard Business School.

Unit 3 Marketing Management, 2010 [6] RMIT University

Schiffman, Bednall, Cowley, O’Cass, Watson & Kanuk 2001, Consumer Behaviour, Prentice Hall, Sydney.


http://www.umsl.edu/services/govdocs/wofact96/123.htm

http://www.umsl.edu/services/govdocs/wofact96/123.htm

http://www.aegis.com/images/flags/Indonesia-

http://www.emeraldinsight.com/fig/2720070605001.png

http://www.emeraldinsight.com/fig/2720070605001.png

http://www.proquest.com.ezproxy.lib.rmit.edu.au/

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