On the surface, Gillette looks like a model of innovation success. A flagship brand of innovation champ P&G, Gillette’s achieved a remarkable ~70% share of the global men’s razor market, all while maintaining huge margins. The secret to getting so many men to pay so much is a series of new-and-improved razors that – despite making Gillette the butt of endless jokes – has carefully targeted areas of consumer dissatisfaction. Last year’s new Fusion ProGlide was a perfect example: it built on a key insight – men get post-shave irritation due to facial hair “tug and pull” – by using finer blades to slice through tough beard hair more effortlessly. Despite blade cartridges retailing for roughly $4 each, ProGlide sales since launching last summer – backed by a massive marketing campaign – were some of Gillette’s best ever for a new product. They’ve followed their innovation playbook for so long that it looks easy: a great business model + big market research + big R&D + big marketing = huge profits.
The Bigger They Are, the Harder They Fall
To a student of Clay Christensen’s theory of disruptive innovation, however, Gillette’s core business looks intensely vulnerable. All the signs are there:
- A clear consumer “job-to-be-done” (hair removal)
- A dominant, likely overconfident incumbent
- Ongoing “sustaining” technological improvement (in blades, lubrication, battery-powered vibration, etc.) that vastly outpaces the rate of change in consumer needs
- Resulting innovations (next-generation razors) that primarily serve a profitable segment of demanding customers willing to pay ever-higher prices (affluent Western men who shave frequently)
- An unknown but presumably large number of “overserved” consumers and untapped nonconsumers (those who don’t shave frequently – or at all – because of cost or inconvenience)
The theory’s prediction is clear: some entrant will develop a less effective but simpler and/or cheaper solution to hair removal. It may initially capture only a small – and relatively less profitable – portion of the bottom of the market, but will likely improve its technology over time and relentlessly advance up-market. Gillette would find itself in the innovator’s dilemma, choosing (rationally) to cede less profitable business at the market’s low end and retreat to ever-higher ground, ultimately ending up with only a niche specialty market, if it’s not forced to exit altogether. If a fall from such a lofty position as Gillette’s sounds unlikely, consider the fate of Bethlehem Steel in the 1980s, IBM in the 1990s, Kodak in the 2000s, and, most recently, HP.
Reversing the Process
Fortunately, there are ways to escape this trap. In one prominent 2009 article, Tuck professors Vijay Govindarajan and Chris Trimble, along with CEO Jeff Immelt, described GE’s plan to disrupt itself via “reverse innovation.” Rather than develop products for the affluent U.S. market and try to sell them in the developing world, GE’s business units have begun to develop products specifically for the mass Chinese and Indian markets, such as a portable ultrasound device with lower quality and fewer features – but a price tag 80% below a conventional one. To pull this off, the key for GE was, as the authors put it, “shifting the center of gravity” to the overserved emerging market - in customer research, R&D, and organizational decision-making. Even more remarkably, GE has advanced its low-end technology to the point where a version can be sold competitively in the developed world, completing the reverse innovation cycle. GE Healthcare’s PC-based ultrasounds, for example, were developed for rural China but have been introduced into the U.S., where they may have cannibalized sales of GE’s traditional machines – but have also disrupted competitors, as well as preempted other potential developing-world entrants.
P&G isn’t stupid either. Since Gillette was acquired by the global conglomerate in 2005, its approach to market research and product development has been slowly but dramatically transformed. The razor business’s far less visible but perhaps more important 2010 product launch was the Gillette Guard, its first razor developed entirely in and for the Indian and other emerging markets. Through thousands of hours of in-person study, Gillette researchers learned that Indian men primarily sought a safe razor that could be easily rinsed in a bowl of still water, and that was cheap enough to be a reasonable alternative to a barber – or to not shaving at all. The Guard was developed (from a “clean sheet” design) with a safety comb, easy-to-rinse blade cartridges, and a single blade in a plastic housing with 80% fewer parts. Compared with the ProGlide, this simple design likely yields a relatively worse shaving experience by American standards, but the Guard’s replacement blades cost a mere 5 rupees - 95% less than the Indian version of Gillette’s Mach3.
Disrupt or Be Disrupted
But does Gillette’s emerging-market razor solve its innovator’s dilemma? For one thing, Gillette has shown no interest in importing even an improved version of its ultra-cheap, “good enough” product back to the U.S. It’s perfectly reasonable to point out that, in the developed world, Gillette’s share is so dominant (and margins so huge) that the cost of cannibalizing its sales of premium razors would be much higher than GE’s. Competitors won’t care, however, which is why Govindarajan argues that, unless it is willing to risk much of its core business itself, someone else will eventually do it for them. And lest Gillette think it can wait until it spies a potential disruptor before developing a U.S. version, it might do well to remember the lessons of Seagate, which developed its own 3.5″ computer hard drive but ignored its unattractive business case relative to its core 5.25s – only to be disrupted by Conner Peripherals, a former Seagate spinoff which focused on 3.5″ drives and rapidly left Seagate behind. As Christensen put it,
“[W]hen established firms wait until a new technology has become commercially mature in its new applications and launch their own version of the technology only in response to an attack on their home markets, the fear of cannibalization can become a self-fulfilling prophecy.”
A deeper question is whether a redesigned low-end razor is really what will ultimately disrupt this market. After all, a durable handle with disposable snap-on blades, scraped across a lathered face every day, is a rather clumsy solution to the job of hair removal (especially when defined broadly). The Gillette Guard made a radical trade-off in relative performance and price attributes, but didn’t fundamentally change Gillette’s model, entrenched as it is by decades of pervasive marketing. It’s easy to imagine how a chemist might develop a cheap cream that stops hair growth entirely, but has some negative side effects or other factors that cause traditional shaving consumers – and therefore Gillette – to ignore it. Until, that is, the kinks begin to be ironed out, and its inexorable march up-market causes Gillette to flee rather than fight.
By then it will be too late. The key question, therefore, is whether Gillette has the courage to truly disrupt its own seemingly invincible core business. If not, disruption will eventually come from without. It’s just a matter of when.
John R. Moran is a consultant at L.E.K. Consulting and writes about strategy and innovation at rampantinnovation.com (all opinions are his own). Follow him on Twitter at @JohnRMoran.