Will Gillette's New Razor Kill Its 100 Year Old Business Model?

The razors-and-blades strategy is a staple of business school lore and of corporate strategy: lock consumers into one platform and then keep selling them whatever they need to keep it operational - but at inflated prices and juicy margins.

Whether your product is smartphones or your service is software upgrades the same basic model is at work. You have made the cost of switching too annoying, expensive and hassled to contemplate.

But all good things are subject to disruption in the internet era and shaving is no exception. Gillette's revenue in that segment has started to drop so alternatives must be considered. The expensive blade is being disintermediated by inexpensive rivals, fashion changes have deemed beards, facial hair generally to be the look of the moment, a revulsion among younger consumers against the disposable society, all of which means customers are beginning to feel that they deserve better options.

Whether Gillette's new model will shore up the business or simply slow a long-standing trend is not yet clear, but it is evident that just because something has worked well since just after the US Civil War, does not mean it will last forever. JL


Kyle Stock reports in Business Week:

The razor has typically been just a cheap vehicle to sell expensive blades, locking customers into a proprietary platform. Every few years, the consumer-goods honchos say, ‘OK, it’s time to add another blade”; and people rush out and buy the thing en masse.

Procter & Gamble (PG), which hasn’t done a whole lot on the innovation front since the Swiffer in 1999, has a new Gillette razor in the works.
The Wall Street Journal got its hands on some secret documents that show a relatively standard face trimmer mounted on an orange ball bearing. Dubbed the ProGlide FlexBall, the unit will sell for between $11.50 and $12.60 when it hits shelves in June, according to the Journal. The company is touting “optimized stiffness” and just the right amount of “damping,” plus 23 percent more skin contact, specs that suggest the sophistication of a sports car.
But here’s the true innovation: Gillette’s new razor will use P&G’s current blades, a total departure from the notorious razors-and-blades model that has characterized the segment since Civil War beards went out of style the first time. The razor has typically been just a cheap vehicle to sell expensive blades, locking customers into a proprietary platform. Every few years, the consumer-goods honchos gather around a boardroom and say, ‘OK, it’s time to add another blade”; the comedians at places like the Onion poke fun; and people rush out and buy the thing en masse.

But that brilliantly simple business model may finally have worn thin, thanks to e-commerce startups such as Dollar Shave Club and Harry’s. With a heavy dose of humor, some cheap Asian suppliers, and sharp customer service, these companies started convincing consumers that razors were a commodity, not high science. In October, Dollar Shave Club had 330,000 members and gathered another $12 million in venture capital.
Meanwhile, Gillette’s revenue from its grooming segment—mostly razors and blades—dropped in its last fiscal year for the first time in five years.
Which is exactly why Gillette’s new ball-bearing device is so fascinating. Its launch suggests those cheap blade subscription services have been trimming the brand’s business. Gillette has even cobbled together a razor-blade subscription service of its own via retail channels such as Amazon.com and Drugstore.com.

Assuming its brand power is threatened on blades, P&G made an astute shift to focus on the actual razor and designed something that can’t easily be knocked off, particularly if Gillette’s patent attorneys were involved in its development.
The one thing that P&G hasn’t changed is its marketing strategy. It isn’t bootstrapping a viral campaign with a small chunk of venture capital. It simply set aside $200 million to make a splash—another thing scrappy startups can’t do.