Boeing vs. Gillette

One thing that caught my attention with this week’s lecture was the comparison of airline engines and disposable razor blades.  Interesting concept.  But in reality, it makes much sense.  When Boeing sells a jet engine, the amount of upkeep and maintenance that is involved (fans, compressors, turbines, lots of moving parts) can be high.  So, it would stand to reason that the company does not make that much income off of the actual engine but generates more income with the replacement and maintenance parts (as well as labor costs).  But compare it to razor blades?  Yes, it can be a valid comparison.

How, you ask?  “It's pretty simple: invest in an installed base by selling a product at low prices or even giving them away, then sell a related product at high prices to recoup the prior investment. King Gillette launched us down this road.” (Picker, 2010)  Gillette held a patent on the product until 1921 but then opted to drop the price of its handle to match other competitors and focus upon the selling of the blade and the handle separately.  They then lowered the number of blades in a package from 12 to 10, thereby increasing revenues by decreasing product delivered.  Over the years, many various competitors have entered (and left) the marketplace, including Ever-Ready, Gem Junior, Schick, and Bic.  In the end, the razor has evolved into a commodity.  An airliner’s engine, on the other hand in NOT a commodity and remains within a niche market.

But why are they a valid comparison?  Because they both sell the primary use item at a loss or near loss and make up the difference with sales that are generated by replacement parts.  Other items that can be considered to use the same or similar strategy are computers, automobiles, large machinery, industrial equipment, and some household appliances.  It is important to note that as the price decreases (especially within the household items and computers) that consumers can find it easier to replace the item rather than purchase parts.  One of the best examples of a household item that fits this description is the toaster.

The adoption of innovation generally refers to the consumer who has adopted a new product or a behavior.  There are many reasons for adoption of an innovation.  Some reasons include culture, dominant design, politics, and economics.  Applying the adoption of innovation theory percentages that were given in the lecture, one would ascertain that 2% of consumers used disposable razors when they were first introduced.  As the product became more widespread, early adopters were at 14% and the early majority came in at 34%.  The late majority also ranks at 34%, but they are usually unconcerned with product features. I guess that leave 16% of the population with scratchy faces and beards.

But has Gillette re-invented the razor?  Well, it is safe to assume that they have tried to.  With the invention of the ‘Fusion ProGlide,’ a new product was born.  Can this be considered a product extension?  The answer is yes.  Brand extension is induced by competition and Gillette brought a ‘new’ product into the marketplace due to the same.  The added value of the ‘Fusion ProGlide’ is that it turns shaving into gliding, at least that is what the advertisements say.  

As the typical shave is turned into a glide, the advertisements tout the Fusion ProGlide as Clay Matthews (the Green Bay Packer’s football player) is a big meanie football player that likes a close shave and a another commercial that features a boxer who has sensitive skin.  Andre 3000, Gael Garcia Bernal, and Adrien Brody serve as posterboys, and Kate Upton promotes manscaping using the new product of the Fusion ProGlide Styler.  Yes, a product extension of a product extension.  (Google manscaping to determine what it means...)

 Will the new product extension (Fusion ProGlide Styler) cannibalize the Fusion ProGlide?  Probably, at least to a small countable point.  As pointed out within the lecture regarding Pharmasim, I would be keeping my eye on trade publications, Standard and Poor’s, or Moody’s in order to see exactly where the product classification is falling within the sales figures.  As well, if the gross margin is less for the Styler product than the fusion ProGlide, it may affect the bottom line sales figures.  But in my home, I will stick to using the Fusion ProGlide blades that already fit into my Gillette produced handle…without the Styler, if you catch my drift.  But, I will conclude that watching Clay Matthews run around a football field entices me to purchase a product over seeing Joe Namath in pantyhose.  (Yes, a reference to a complimentary shaving product by a different manufacturer and a commercial that I saw on YouTube…)

The issues surrounding the demand of Allround in the Pharmasim simulation can be estimated using the total market as a guide. For example, if the market dictates 100,000 units per year total and the demand for Allaround is at 50% relative to other products available on the market, that would equate to 50,000 units on an annual basis. However, it is generally not that easy. Let's say that there are eight products competing for the same market. If Allround is ranked third in sales and has a market share of 27% and the total market usage of all products similar is at 925,000 it would equal 249,750.  Admittedly, this is a very estimated way to look at the big picture. 

References:

Picker, Randy. "Gillette's Strange History with the Razor and Blade Strategy." HBR Blog Network. Harvard Business Review, 23 Sept. 2010. Web. 4 May 2013.