Thursday, September 15, 2005

Forget angels on the head of a pin.

The real question is: how many blades can fit on the head of a razor?



Gillette's Smooth Bet: Men Will Pay More For Five-Blade Razor

By Sarah Ellison and Charles Forelle
941 words
15 September 2005
The Wall Street Journal

(Copyright (c) 2005, Dow Jones & Company, Inc.)

DAYS BEFORE Procter & Gamble Co. reached an agreement to purchase Gillette Co. for $57 billion, P&G Chief Executive A.G. Lafley had a special request. He wouldn't put forward a final bid until he had tried Gillette's new top-secret razor, whose success would determine Gillette's profits for years to come.

So one day in late January, Mr. Lafley and his chief financial officer, Clayt Daley, walked out of Gillette CEO Jim Kilts' office in Rye, N.Y., clutching two razors to take home and try out the next morning.

Yesterday, weeks before P&G is due to complete its Gillette acquisition, Gillette unveiled the razor. Dubbed the Fusion, it offers five blades to the three of Gillette's current leading product, the Mach3, plus a "trimmer" blade on the back. Gillette said it expects Fusion, which will go on sale in the first quarter of 2006, to reach $1 billion in sales in its third year on the market.

Mr. Lafley had good reason to be so diligent in determining Gillette's future in shaving. Blades and razors make up more than two-thirds of Gillette's profit. But the company comes out with a new razor system only every seven or eight years. Each launch is underwritten with a huge advertising campaign, and Gillette rolls out the new blades at a hefty price premium to its predecessors. The company then gradually raises the price of its older razors to persuade men to switch to the new model.

That strategy has made Gillette's Mach3, introduced in 1998, the best-selling men's razor product of all time, used by 100 million men every day, according to Gillette. With each launch, Gillette faces skeptics who wonder how much better -- and more expensive -- a shave can get. Its advancements have even become the stuff of comedy; Saturday Night Live years ago, and the Onion more recently, parodied the perpetual move toward more blades on a single razor.

Now, for the first time in many years, Gillette is facing a small but persistent challenge from Energizer Holdings Inc.'s Schick brand. For years, Schick ceded innovation to Gillette, and Gillette brought out new products on its own schedule with little attention to competitors.

Jolted out of perpetual somnolence in 2003 by new owner Energizer, Schick beat Gillette to the punch with a four-bladed men's razor called Quattro. In the past two years, Schick has boosted its share of the market for replacement blade cartridges to 16% from 10%, while Gillette's share has dropped to 81% from 86%, according to market researcher Information Resources Inc. (IRI's data don't include sales from Wal-Mart and club stores.)

The Fusion announcement comes only weeks after Schick said it would sell a battery-powered version of Quattro, which apes Gillette's own M3Power. Gillette's Mr. Kilts dismissed comparisons between Gillette and Schick, but some analysts question how hard the company will have to work to maintain its dominance.

"Gillette may find that it costs more than expected to defend these businesses," said Constance Maneaty, a Prudential Equity Group analyst, in a research note.

To promote Fusion, Gillette is expected to spend "substantially more" than the $100 million it spent in the first year promoting Mach3, said people familiar with the company's marketing. Gillette wouldn't disclose detailed marketing plans. Peter K. Hoffman, president of Gillette's blade and razor division, said the company planned a major advertising effort that would be backed with "state of the art" in-store events.

Fusion signals that Gillette has had to drive its innovation engine faster -- the company has less time to milk the substantial capital investments that go into developing and manufacturing new razors. Gillette managed to stay at two blades for 27 years and through three major razor systems (Trac II, Atra and Sensor) before going to three blades in 1998. Almost eight years later, Gillette has skipped to five. And Fusion will come less than two years after Gillette pushed some men to leave their Mach3s in the medicine cabinet and buy a juiced-up M3Power.

Gillette says the trimmer, which is a single blade attached to the back of the razor, helps men shave under the nose, trim sideburns and shape facial hair. "You should have seen how uneven my sideburns were until this product came along," joked Mr. Kilts in an interview.

Fusion has other features, including a thin, irritation-damping blade. The Fusion comes in two varieties, manual and battery-powered. The latter vibrates, like Gillette's M3Power, but has a microchip to control the vibration rate.

Mr. Kilts said the company introduced both the Fusion and the Fusion Power at once because they couldn't ask consumers who had switched to the battery-operated M3Power to go back to a manual razor. "Most people who try the power razors can't go back," he said. That means any launch in Gillette's future will likely include a power razor.

A four-pack of Fusion refill blades will cost $12 to $13, breaking the $3-per-cartridge barrier for the first time, and commanding a premium of about a third over Mach3 Turbo refill blades. Mr. Kilts said Fusion's innovations would be more than enough to ensure "trade-up" from Mach3, and the company's research shows a 2-1 preference of consumers for Fusion over Mach3. "Men are always looking for a better way to shave," Mr. Kilts said.


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