Gillette Indonesia

CLN Case Study Analysis Gillette Indonesia

2

Gillette Indon esia

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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









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 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 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. 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









•

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 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; of marketing 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 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











4 Situation Analysis Macro-Environment 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 fulltime 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 Blades 2. Disposable Blades 3. 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









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.

Micro-Environment

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.









Entry Barriers 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. razor market. New Entrants 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 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 Shor t Term (< 5 year s) 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

ss-sell ing Cr o ss-

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% of 20% should be achieved in the system blades range of products. of products. Long Term (10 year s) Revenue Gr ow owth

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.











suite. Also marketing aimed at shaving creams and balms to complement existing offerings will be introduced.









7 SWOT Analysis Analysis Str ength s

· · ·

Br and

Weak nesses awareness and association with

Distribution issues including limited

·

high-quality blades

control over the distribution channels,

48% of market share for blades and 90%

weak communication networks, poor

of the premium priced segment

ibution traffic conditions and lack of distr but

Product diff er entiation allows Gillette to

service technology

target different segments of the

Manufacturing capacity – scope to

·

improve productivity is currently limited

population ·

Manufacturing plant is highly automated,

Cultur al

·

practises impacting em ployee

ibutor ) productivity and partner (distr but

with efficient business processes

r elationsh p ips Global marketing emphasis not suita ble

·

for the Indonesian mar k k et

O ppor tunities ·

Population of nearly 200 million

·

Strong economic growth - average annual Gross Domestic Product (GDP) growth of

Thr eat s

·

Aff orda bility

- approximately 80% of the

population earn less than 10,000 ·

Com petition

from cheaper br ands.

over 7% for more than 20 years has

Gill ette’s retail prices were sometimes

manif ested in increased per ca pita

four times that of the com petitive









8 Marketing Plan Recommendations The overall marketing strategy identified in Table 8.1 is focused primarily on the lowend blades market (80% of the population) with an affordable product and an expectation of upgrading 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 Company adopts a comprehensive comprehensive marketing campaign utilising the Segmenting, Targeting, Positioning model (Kotler et al. 2000, p.12) in the doubleedged, 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 imp lements a value proposition utilising the 4Ps for a ll market segments (McCarthy 1960) to adapt its product and marketing program to the needs









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. 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.









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. Implementation 1 •

Mass marketing appeal aimed at women in Indonesia to educate them in the ‘art of shaving’. 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 mon ths. hs.

o

Gillette razor promotional stands to be located in supermarkets and urban kiosks to provide free samples and marketing in f ormat ormation targeting f emales. emales.

•

Aim to increase sales by 100-200% .

B. Implementation 2 •

To help increase the usage and sales of shaving creams and foams, f ree ree











Appendix 1: PESTLE Analysis PESTLE Analysis For the past 30 years, Indon esia’s political system has

Political

been led by President Suharto who oversees allm all ma jor economic developments and

changes

in do mestic

policies. This prese prese nts a political dilemma for Gillette should the political power shift to an opposing par ty. (Quelch,J. Long , D. 1996 p. 363) The Indonesia n

onomic Econom

Government encourages a high ex por t

rate to aid the existing high population growth rate to increase the nation’s em ployment prospects. investment

For eign

in Indonesia for 1994 has risen to $23.7









Appendix 2: Product Details Product Details









Appendix 3: Financial Performance Financial Performance Gillette Indonesia Sales breakdown

1996

1995

1996

(millions)

(millions)

$10.3

$11.2

9%

$1 . 2

$2.5

1 08 %

$5 . 6

$ 1 0 .4

87 . 51 %

% growth

Shaving products total sales Blades Disposables Sensor









References Central Intelligence Agency, Fact Book, 1996, available from ht tp :/ ://w ww.umsl. edu/s e rv rv i c es / g ov do do cs cs / w of a ct 9 6/ 6/12 3.htm (viewed 20th March, 2010) ‘Country Snapshot’ 1996, South Florida Business Journal , vol. 2, November 8, p.1. Retrieved March 19, 2010 from http: tp :// ww www . pro qu es t. t. co m.e zp ro ro xy .l ib ib .rmit.ed u.au . Fathoming Porter's five forces model in the internet era [Image] 2005 . Retrieved March 19, 2010 from ht tp :/ ://w ww.e me r al aldin si gh t.t. com /f/f ig ig /2 /2 72 72 007 00 7 06 06 05 05 00 1.p ng Indonesia-map [Image] 1996, Retrieved March 19, 2010 from w ww .aegis.c om /im ag ag es /f /f l ag s/In do do ne sia 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.

Gillette Indonesia

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