It is easy to joke about how many blades Gillette will cram onto a razor. The Onion once wrote that the P&G division aiming for a five blade razor (with a headline I probably shouldn’t repeat here). Of course, Gillette then went and did it. Now the Wall Street Journal Gillette is going in a different direction — at least in India (Gillette’s Latest Innovation in Razors: the 11-Cent Blade, Oct 1). The company is introducing the Gillette Guard, a single blade designed around delivering the best performance possible for a given cost. The company is currently not the leader in the Indian market in part because of cost. To date, Gillette has emphasized the performance of its products which has cost a secondary consideration. For example, it has pushed the Mach 3 — for which blades sell at 100 rupees, around $2.24. But with P&G turning to developing markets for growth, they have been looking for ways to get men to try the Gillette brand. The Guard razor will sell for 15 rupees, or 34 cents, while the matching blades will sell for five rupees, or 11 cents.
This has required changes in how Gillette approaches product development.
In the past, P&G would sell basically the same premium Pampers diapers, Crest toothpaste or Olay moisturizers in developing countries, where only the wealthiest consumers could afford them. To reach more consumers, P&G changed course by creating pared-down products specifically designed to be less expensive, like Naturella’s extra-absorbent, cotton feminine-hygiene pads and Downy Single Rinse fabric softener, which requires less water.
P&G uses what it calls reverse engineering. Rather than create an item and then assign a price to it—as in most developed markets—the company starts with what consumers can afford and then adjusts the features and manufacturing processes to meet the target.
For Gillette Guard, the target was five rupees, about the cost of shampoo sachets or small tubes of toothpaste. The price takes into account not only consumers but the kiosk owners who serve most shoppers in developing markets. The lower cost will encourage more small store owners to stock up on the item, P&G hopes.
The costs have come out in some obvious ways (e.g., no lubricating strip) and some fortuitous ways (Indian men prefer a lighter weight handle than men in the US or Europe).
The interesting part of this story to my mind is how it impacts developed markets. Chasing developing markets is an obvious play for bolstering growth. But the money for developing products is finite. At some point, new products for India mean fewer developed for the US or Europe — or firms have to find ways of developing products that have the potential to be truly global. That doesn’t mean that products have to be 100% identical across markets, but it makes finding ways to leverage investments made in one market across others. It could well be that going forward developing markets are the driving force in product design while the US gets products “compromised” by the need to fit within a global portfolio.
To bolster that argument, let me switch from 11¢ razors to cars. The Wall Street Journal recently had a story about the Ford Fiesta, a “perky subcompact” (Why We Could Be Driving Fiestas, Sept 28). Part of the thesis of the article is that higher mileage are coming down the pike (so to speak) and Detroit needs to be selling cars like the Fiesta in order to meet those mandates. The interesting thing is the assertion that car makers could be OK with aggressive mileage targets.
Auto makers have good reasons to go along with government efforts to mandate higher fuel economy. Europe and China are ahead of the U.S. in demanding advanced petroleum-saving technology. In Europe, for example, the European Union has set a target for average carbon dioxide emissions of 95 grams per kilometer by 2020—the equivalent of about 65 miles per gallon. That means a lot of highly efficient diesel subcompacts.
If the U.S. clings to gas guzzlers, it risks becoming what IHS Global Insight automotive analyst Eric Fedewa calls a “technology island,” as U.S. manufacturers would be making cars with no appeal anywhere else in the world.
Thus we are back to global product development. Maintaining separate programs for different markets is expensive. A company that designs around the US is likely behind the eight ball in the parts of the world that are really growing. Similarly, a company that designs for the developing world will be hard pressed to compete here (I do not expect to own a Tata Nano). The Fords and Gillettes of the world are going to have to learn how to leverage development across markets.