The price of a close shave
There is no greater truth perhaps than the old adage that the only constant in the universe is change, and thanks to the age of disruption, dominant businesses around the world are falling by the wayside as new challengers make a play for category leadership. Such a disruptive upheaval is happening in the men’s personal care category, particularly in shaving and ancillary products. The global shaving segment is estimated to be valued at about $17 billion and, according to some estimates, over 60% of this amount represents purchases of razors and replacement blades.
For over a hundred years, the shaving razor and replacement blade business was dominated by the duopoly of Gillette and Schick. These companies were launched in 1901 by King Gillette (who introduced the safety razor concept) and in 1921 by Colonel Jacob Schick, who introduced his own inspired version of the modern safety razor. Competitors came and went and the two titans remained the unquestioned kings reigning on this lucrative segment from their perch. In time, the valuation of both companies caught the interests of larger consumer product giants and Gillette was bought out by P&G and Schick was acquired by the Consumer Products Division of Energizer Holdings.
In the process, however, the two companies created a business model that changed the way men looked at what was essentially an irksome daily task into a labour of love and became central to the image of a quintessential gentleman. All this was done with a business model replete with great messaging, intense product development, high technology input and some very slick marketing. The core model was to have relatively inexpensive razors that were cheap to acquire but fed with replacement blades that were not. Added to this were the plethora of ancillary products – shaving gels, foams, aftershave; everything needed to get the best shave and feel.
Apart from establishing a steady revenue stream by hooking in customers with cheap razors and then providing revenue continuity with expensive replacement blades, the business model of both companies had another interesting spin. To keep customers engaged, the expensive replacement blades provided resources that could be invested in product innovation and enticing marketing that was done at a continuous basis. This created an industry caught in a cycle that kept bringing out newer and newer products that not only raised the price, but promised the next level of the close shave – something that men around the world naturally aspired to, but could only have if they acquired the latest shaving razor from Gillette or Schick. In the meantime, the average single purchase of shaving related products at US stores (with replacement blades accounting for the major chunk) ballooned from eight to $25 in the last two decades.
Dollar Shave Club was launched in 2011 by Michael Dubin. The company started off by accusing the big players of creating the false idea that shaving was a high-tech (and therefore high-priced) activity, whereas in Dollar Shave Club’s view, men needed to shave (they didn’t particularly have to love it, but some do) and their product was the best way they could get the shave they needed at the right price.
While both Gillette and Schick seemed happy with this ‘high cost, high revenue business model’, consumers shelling out more and more money on space age shaving gadgetry were increasingly frustrated. The high price replacement blades became the butt of jokes as retailers started placing them in glass cases with locks that were only opened once a customer committed to the purchase. Given the increasing levels of customer frustration and the intrinsic need for the product, the category was ripe for disruption. However, what surprised industry analysts is how two upstarts succeeded in clawing away Gillette and Schick’s market share and the pace and scope of that change. Another interesting aspect was the fact that these two upstarts deployed two different, disruptive business models and managed to gain considerable traction with a sizeable chunk of the shaving care market in the US. The challenge kicked off in 2011 and 2012 with the launch of Dollar Shave Club and Harry’s respectively.
Razor companies had been ripping off customers for years, and were disrespectful to their customers by expecting them to shell out more money than necessary for something that added nothing to the experience.
Dollar Shave Club was launched in 2011 by Michael Dubin. The company started off by accusing the big players of creating the false idea that shaving was a high-tech (and therefore high-priced) activity, whereas in Dollar Shave Club’s view, men needed to shave (they didn’t particularly have to love it, but some do) and their product was the best way they could get the shave they needed at the right price. The company’s marketing campaign was often irreverent and made jests about the fact that your grandfather had as good a shave with his one blade razor as you did with your six blade, uber scientific, space age razor. Other ads showed customers (often portrayed by Dubin himself) being arrested for asking too many questions about their replacement blades or wanting to touch a pack before buying. One set of web banner ads even hit home the point succinctly with the caption: “Our blades are f***ing great!”
The idea was simple; razor companies had been ripping off customers for years, and were disrespectful to their customers by expecting them to shell out more money than necessary for something that added nothing to the experience. This idea took off and customers started jumping to the new subscription based Dollar Shave Club. The company then partnered with a foreign blade maker who provided it three variants of blades at extremely low price points. They also partnered with the Dr. Carver’s men’s grooming product line to provide ancillary product support, thereby eliminating the need for expensive product development and formulation costs. With all of these elements in place, Dollar Shave Club could focus on fulfilment only and provide customers with the option of paying as low as one dollar for a basic subscription for a two-blade razor all the way up to a nine dollar package with a four-blade option; this worked out to a low average spend of $12 to 108 a year.
Apart from cheap razors, a Harry’s replacement blade was priced at an average of $1.88 versus the $4 Gillette/Schick average. The company used a combination of viral digital marketing and PR to hit the established players, claiming that Harry’s razors (unlike Gillette’s) were designed on Earth (rather than space) for real men who wanted quality, but shouldn’t have to donate an organ to finance their close shave.
The idea that shaving had become an over-engineered, expensive and a needlessly sexed-up activity that could easily be simplified was something that customers related to. Furthermore, while the overall market size remained stable, the online purchase category (primarily shave clubs) in the US grew at an average year-on-year rate of 25%, of which Dollar Shave Club reportedly had a share of about 60%. To finance their meteoric growth, the company attracted the interest of a number of venture capitalists and was ultimately bought out by Unilever for a whopping one billion dollars in cash in 2016. Many expect the company to overtake Schick as the number two player by volume, if not by value, in the category in the next year, if not sooner.
Harry’s was founded by Jeff Raider and Andy Katz-Mayfield in 2012. Seeing the ballooning cost of an average shaving related purchase, Raiser and Katz-Mayfield decided to go in for a disruptive business model, based on product simplicity albeit with good design, quality workmanship and a significant price advantage. Their company created a subscription service similar to Dollar Shave Club’s, but there the similarities ended. Harry’s had only two razor variants; the $10 Truman and the $20 Winston. The subscription offered a fixed number of replacement blades along with ancillary products like shaving creams and wipes with free shipping.
Apart from cheap razors, a Harry’s replacement blade was priced at an average of $1.88 versus the $4 Gillette/Schick average. The company used a combination of viral digital marketing and PR to hit the established players, claiming that Harry’s razors (unlike Gillette’s) were designed on Earth (rather than space) for real men who wanted quality, but shouldn’t have to donate an organ to finance their close shave. According to Harry’s, their customers were spending just under $190 a year on the category compared to the $395 a year they used to when buying competitive products.
Harry’s also invested heavily in product development and rather than outsource production to third party partners, chose to make their shaving cream and aftershave products themselves. To this end, they partnered with German blade maker Feintechnik, to create the best blades in the business at low costs (due to having a low number of SKUs). Furthermore, as business grew (with more than 100,000 subscription service customers and over 375,000 retail customers), Harry’s went in for hedge fund-led financing and bought out Feintechnick. This completed the company’s vertical integration strategy and gave it end-to-end control from production to consumer experience. Recently, Harry’s concluded agreements to start stocking their products at major US retailers, such as Target and Walmart, thereby moving beyond their online shave club distribution model and reach out to a larger audience of customers.
How the landscape of this category will further change over the next few years is anybody’s guess, but the fact is that Gillette and Schick are worried enough by the challenges posed by Dollar Shave Club and Harry’s to start fighting back.
Perhaps the greatest testimonial to the success of Dollar Shave Club and Harry’s was the reaction of Gillette. The company seemed more rankled by Harry’s than by Dollar Shave Club. Initially, Gillette laughed off the efforts of the new companies as mindless upstarts who would amount to nothing. However, as customers started migrating, Gillette took a number of steps that aggravated the problem. They uploaded a campaign on their website about how most customers who had tried Harry’s did not go for a repeat purchase; the campaign was called ‘Welcome Back’. However, this claim was challenged by Harry’s and Gillette had to take the ads down (while denying any wrongdoing). This turned out to be not only a loss of prestige, it made Gillette look like a bully. The company next undertook a campaign about how Gillette manufactures in the US (a dig at Harry’s German production); this too failed to make a dent in the enthusiasm for the new, emerging brands. Finally, this year, Gillette have cut the price of their razors and announced a range of low-priced options; they also launched a shave club subscription based concept in what is now a very crowded field, with other players such as Barbasol joining the fray.
How the landscape of this category will further change over the next few years is anybody’s guess, but the fact is that Gillette and Schick are worried enough by the challenges posed by Dollar Shave Club and Harry’s to start fighting back. Industry watchers believe the battle has just started and that there are other frontiers such as women’s razors and other ancillary products that may be the next front in the war.
Tariq Ziad Khan is a US-based marketer and a former member of Aurora’s editorial team. tzk999@yahoo.com