CLN Case Study Analysis

Gillette 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

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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.

4 Gillette Indonesia | CLN Case Study | – Group 5

• 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.

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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.

6 Gillette Indonesia | CLN Case Study | – Group 5

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).

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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 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 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

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.

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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.

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

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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.

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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)

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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

12 Gillette Indonesia | CLN Case Study | – Group 5

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

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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
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
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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
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 all 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 represents
an ideal 4Ps model following its improved economic growth outlook.

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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. Implementation 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. Implementation 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. Implementation 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.

17 Gillette Indonesia | CLN Case Study | – Group 5

Appendix 1: PESTLE Analysis

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

Political been led by President Suharto who oversees all major
economic developments and changes in domestic
policies. This prese nts a political dilemma for Gillette
should the political power shift to an opposing party.
(Quelch,J. Long, D. 1996 p. 363)

The Indonesian Government encourages a high export

Economic
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)

Popu lation -196 million

Social Popu lation demograph ics
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)
Manufacturing improvements in 1995 saw increases of
Technological 57% in productivity reducing the time to produce their
blades (Quelch,J. Long, D. 1996 p. 363)
The President of Indonesia oversees all legal reforms.
Legal Regulations prohibit foreign companies like Gillette
from importing or distributing their products. (Quelch,J.
Long, D. 1996 p.363)
Indonesia has environmental legislation as of 1996
Environmental dealing with disposal of waste products resulting from
manufacturing (e.g. ammonia).

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Appendix 2: Product Details

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

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Appendix 3: Financial Performance

Gillette Indonesia Sales breakdown 1995 1996 1996

% growth
(millions) (millions)

Shaving products total sales

$10.3 $11.2 9%
Blades
$1.2 $2.5 108%
Disposables
$5.6 $10.4 87.51%
Sensor
$2.0 $3.0 50%
Razors
$0.5 $0.5 0%
Prep Products

$2.0 $2.3 15%

Non-Shave products

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References
Central Intelligence Agency, Fact Book, 1996, available from
http://www.umsl.edu/services/govdocs/wofact96/123.htm (viewed 20th March, 2010)

‘Country Snapshot’ 1996, South Florida Business Journal, vol. 2, November 8, p.1. Retrieved March
19, 2010 from http: //www .proquest.com.ezproxy.lib.rmi t.edu.au.

Fathoming Porter's five forces model in the internet era [Image] 2005. Retrieved March 19, 2010 from
http://www.emeraldinsight.com/fig/2720070605001.png

Indonesia-map [Image] 1996, Retrieved March 19, 2010 from www.aegis.com/images/flags/Indonesia-

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 Press
New York.
th
Quelch, JA & Bartlett CA, 2006, Global Marketing Management: A Casebook, 5 edn, Thomson
South, 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.

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