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Razor Thin Margins: The Key to Finding Profits in Emerging Markets

razor

To Shave or Not to Shave

Like most men around the world, Prakash, a thirty-year-old Indian port worker wakes up in the morning facing the unpleasant but necessary task of having to shave. But unlike most men in the developed world, for Prakash shaving means sitting on the floor with a small amount of still water, balancing a hand-held mirror in low light, and experiencing frequent nicks and cuts from his double-edged razor[1].

On the other side of the globe, with headquarters in Cincinnati, Ohio, Procter and Gamble (P&G) is one of the largest consumer products companies in the world with operations in more than 80 countries and more than 300 marketed brands sold in 160 countries. Traditionally, P&G’s product mix has focused on high-end products geared towards the developed markets. Hurt by slowing sales growth in developed markets during the recent global recession and European economic crisis P&G began to look at emerging markets for long-term growth[2].  P&G’s historic focus on developed markets left them unprepared to enter the emerging markets where they were blindsided by their competitions’ market penetration. P&G underestimated the cost of building its presence in developing countries resulting in a shortage of funds to finance its expansion in emerging markets and an inability to achieve economies of scale. This resulted in higher priced products in these regions. Compared to its competitors like Unilever or Colgate-Palmolive, P&G has been slower at reverse engineering its products to be affordable to the bottom of pyramid market segment in emerging markets.

In India, nearly half a billion men still shave with a century-old technology - the double-edge razor - because there is no better affordable alternative. Many of these men shave without running water and often with a handheld mirror, an intense, tedious and time-consuming process that can easily result in nicks and cuts. To meet this need, P&G spent millions of dollars developing a new razor for the Indian market and tested it on Indian men studying at MIT. The test yielded great results and P&G launched the product in India, where it was a complete flop[3]. P&G failed to consider that the Indian students at MIT had running water unlike many men in India. Without running water, the razor that was popular with the Indian men in the U.S. was virtually useless for those in India[4]. P&G failed to realize that consumers at the bottom of the pyramid cannot be targeted the same as consumers at the top of the pyramid. Although there is monetary disparity between the two, the differences and needs go beyond money and must be looked at from a local level in order to determine what the consumer really needs[5].

Emerging Multinational

 Different factors need to be considered when attempting growth in emerging markets as compared to the developed markets P&G is accustomed to. These new considerations include different local customer preferences, different local laws, regulations, and possible consumer loyalty to local brands/companies.  Consumers in China and India care about brand reputation but need a low cost option.

 With a determination to be successful in the Indian market, P&G went back to the drawing board. P&G completely reversed the innovation approach to develop the Gillette Guard. It sent a team to India to do ethnographic research – the team spent time in people’s homes, on shopping trips, and watching people shave. What they found was that Indian men were much more price sensitive, and shaved very differently compared to their American counterparts.

Enter the “Guard”

 Leveraging these insights, P&G developed the Guard, a new razor that uses 80% fewer parts, a plastic housing, and a single blade to minimize cost while preserving "good-enough" sh

traditional shaving

aving performance. It also has a large safety comb to reduce nicks and cuts, easy-rinse cartridges for better cleaning without running water, and several other key features designed specifically for the Indian shaver. Not stopping at an India tailored product, P&G built an India tailored business model. To control production and supply chain costs, the Guard is manufactured locally and is distributed through a network of millions of kiranas, or local shops, rather than a few powerful retailers as in the U.S or Europe. Finally, unlike developed markets where the focus is increasingly on digital marketing, P&G invested instead in traditional ads featuring Bollywood actors[6].

 The Guard sells for Rupees 15 with replacement blades priced at 5 (or about $0.30 and $0.10) — less than 3% of the Fusion ProGlide's prices, and became the best-selling razor in India within 3 months of its launch in October 2010[7]. Only about eight months after launch, the Guard crossed 50% (11 million units)[8] of razor market share by volume, which in turn drove the share of other Gillette razors like Mach3 and Vector.

Lessons learned

 Whether it is a better shave for more than a billion men or a better shampoo for itchy scalps all around the world, everything starts with listening to the consumers, understanding their needs and aspirations and spending time with them. Achieving this requires deep human insights that define behavior. These insights inspire big ideas which make brands and their benefits more relevant, credible and important in people’s lives because they touch on how that brand makes everyday life a little bit better.  Conversely, ignorance to these cultural nuances will result in failures for companies seeking to expand into developing markets[9].

 As the market has matured, an orthodox mindset (Table 1) has made it harder for consumer goods companies to develop breakthrough products.  Truly novel and breakthrough products like Crest Whitestrips, Thermacare and Splenda are few and far between, with most “new” products either being line extensions (e.g. new flavor of soda) or incremental innovation (small improvement to existing product)[10].

  

Table 1: Orthodoxy in the Consumer Goods Industry

Orthodox Mindset

Innovative Mindset

  • Sticking with the current business model 
  •  Create a platform brand that plays in different categories, (e.g. Quaker – Oats, Granola bars, cold cereals)
  • Relying on focus groups
  • Ethnographic or anthropological research approaches such as in-context interviewing and "living with consumers"
  • Relying on a company’s own resources
  • Rather than treating all projects equally, companies need to realize that incremental innovations and breakthrough products cannot be developed in the same way
  •  Letting a thousand flowers bloom (having too many little projects driving incremental innovation going at the same time)
  • Seeking and developing external sources of insights: suppliers, consumer communities, entrepreneurs need to be leveraged better to generate ideas

 

Most new products fail because they do not respond to a known or latent customer need. "Managing the Challenge of Product Proliferation," a 2007 EIU survey of 186 senior executives found that only one-third of products launched are in response to documented customer needs. In addition, 49 percent of companies have an "adequate," "limited" or "very limited" understanding of customer buying behavior and preferences[11].

 

While P&G has taken several steps to adapt its strategy to the differences in developing markets, to be truly successful, there will need to be a larger cultural change within their management. To truly serve and capitalize on an emerging market, managers have to really live and understand it.  There needs to be a group of managers void of preconceptions, who are focused on, and willing to spend time in these markets.

Going Forward

 With more than 50% of its R&D scientists reaching retirement age in the next few years, P&G is making an effort to ensure that R&D is more localized and more responsive to local needs. P&G is also preparing to move its global skincare, personal care and cosmetics business to Singapore from Cincinnati to tap Asia’s fast growing market. In what may be a sign of times to come, SK-II became the first billion dollar P&G Asian “homegrown” brand addition to a list of brands like Charmin, Bounty, Pampers, and Tide that produce sustainable annual revenues in excess of 1 billion dollars worldwide[12]. The strategic challenge for P&G is to be “as common as possible and as different as needed” at the same time.

 With the Gillette Guard, P&G has shown once again that it can learn from its mistakes and rebound quickly in an example of what needs to become their mode of operation, if they hope to succeed, as they continue to invest and grow in emerging markets.

 

 


[1] http://blogs.hbr.org/cs/2012/04/how_pg_innovates_on_razor_thin.html

[2] http://bloom.bg/NQzHcc

[3] http://blog.hbs.edu/hbsinov8/?tag=pg

[4] http://blogs.hbr.org/video/2011/06/inside-pgsgrowth-factory.html

[5] http://blog.hbs.edu/hbsinov8/?tag=pg

[6] http://blogs.hbr.org/cs/2012/04/how_pg_innovates_on_razor_thin.html

[7] http://blogs.hbr.org/cs/2012/04/how_pg_innovates_on_razor_thin.html

[8] http://annualreport.pg.com/annualreport2011/innovating/gillette.shtml

[9] http://www.pg.com/en_UK/news-views/Inside_PG-Quarterly_Newsletter/issue3/innovation.html

[10] https://www.mckinseyquarterly.com/Reinventing_innovation_at_consumer_goods_companies_1870

[11] http://www.accenture.com/SiteCollectionDocuments/PDF/ConsumerProductsGroupPoV_103008_fnl.pdf

[12] http://online.wsj.com/article/SB10001424052702304070304577396053688081544.html