1. Should Gillette enter the cassette market at all?
Gillette Safety Razor Division (SRD) would be foolish to not enter the cassette market at this time in the game. With the established and well-trusted brand name on it’s side, Gillette will be able to exploit the undeveloped marketed to it’s fullest potential. The way that Gillette can accomplish this is by utilizing some of it’s biggest and strongest assets to overcome what the consultants believe are the three major problems in the industry: (1) oversized cassette cases, (2) poor internal construction, and (3) inferior quality tape resulting in poor recordings. First, Gillette will make use of its expertise in high-volume manufacturing of plastic products to improve the sizing of the cassette casings as well as enhance the internal construction. This will help to increase the reliability of the Gillette Cassette. Secondly, by using the brand name Gillette, it will be easy for SRD to contract with high quality, reliable suppliers for the components and materials required to produce a high-grade product.
Having the best components and materials will result in a cassette with excellent recording abilities. Lastly, Gillette will utilize its proficiency in marketing mass-distributed packaged goods. Due to the fact that leading brands have done minimal advertising and limited distribution, it is critical for Gillette to execute proficient marketing to increase their initial market share. By focusing its distribution channel solely on department and discount stores (where 40% of cassette unit sales are made), Gillette will be able to maximize it’s sales force potential. In addition, by emphasizing it’s marketing campaign towards the low-income college student segment Gillette will inevitably tap into a large portion of the cassette market share. Roughly 30% of the US population ages 0-29 are cassette owners with 26.5% making less than $9,000 a year.
2. What quantitative analyses can you provide to help answer question #1? What are the margins in each segment? How many cassettes would Gillette have to sell to break even? Below I have generated three tables displaying the numbers I used to calculate the contribution margins, break even in units and dollars, and the percentage of market share for three segments. These segments consist of a new, high quality segment that Gillette will introduce, the professional grade, and the standard grade. I hypothesized a potential retail price of $3.10 for the high quality grade.
By multiplying all the retail prices by 50%, I found the manufacturer price to use in calculating the contribution margins. Additionally, variable costs were different for each segment. The only variable cost that remained consistent within all three segments was the loading, packing, and inspecting cost of $0.20 per cassette. Within the variable cost table are the prices listed for professional and standard tape. Both of these numbers have been multiplied by 2.68 because there are 268 feet of tape within a 60-minute cassette and the prices listed in the case are for 100 feet of tape. Lastly, I utilized the expected number of $130 million in blank cassette sales in 1970 to configure the percentage of market share numbers.
After analyzing the tables, it is clear that whichever segment Gillette chooses to pursue they will all be successful in generating a profitable return. It is recommended that Gillette produce an advanced, high-quality cassette to maintain the Gillette brand name. This cassette will only need to acquire 5% of the predicted $130 million blank cassette sales to break even, and with $2 million dollars pumped into televised advertising Gillette could easy earn over a 5% market share by selling at least 2,099,076 cassettes in a year.
Furthermore, Gillette would be wise to have a lower priced option for consumers who do not need a high quality cassette. Therefore, by acquiring the standard grade cassette the Gillette Cassette would be a more versatile product. With the low retail price of $1.95 Gillette’s target market of low-income college students could easily afford it’s cassette. Granted, the standard grade cassette will require over 2,000,000 more units in sales to break even, however with the Gillette brand name, premium packaging & displays, and advertising to support the product it should be an easy accomplishment.
3. Why is SRD even considering this product?
According to the case, SRD has been assigned an earnings growth target as part of the corporate long-range planning process. SRD’s current forecast of demand for shaving systems indicated that the division would be unable to reach its earning growth target for several years unless it added new product categories to its product lines. Ralph Bingham’s job as vice president of new business development is to identify new business opportunities for the division, assess their feasibility and develop plans for entering such new businesses.
SRD is considering the Gillette Cassette project as an extension to Gillette’s product categories because many trade journals have carried articles on the rapid growth of recording tape sales, which are expected to exceed $500 million in 1970. Bingham is well aware that tape cassettes only represent a portion of this number, however he is confident that the cassette share of the market is large and growing rapidly. Additionally, many of the weaknesses that the cassette market is facing are coincidentally many of SRD’s advantages.
As I mentioned before, Gillette has mastered the packaging and displaying concept for their products. Moreover, Gillette excels at mass marketing packaged goods. Both of these concepts could assist Gillette in penetrating the cassette market before other leading brands. It would be a huge advantage for Gillette to be the first reliable blank cassette distributor in the market, seeing that consumers have only been “burned” by the low quality cassettes available in the market.
4. What concerns do you have about Gillette’s marketing program? Gillette is very well known for their innovation in the razor and blade industry. As you know, this industry has nothing to do with the electronics industry where the cassette product resides. This large contrast between the two trades could cause some hesitation for consumers to completely trust the quality of the product. It is important that Gillette conveys a large understanding of the cassette market through their advertising to convey to consumers their knowledge of cassettes. Below I have constructed a competition analysis table to showcase the strengths of both Gillette and its competition in the cassette market. As you can see, none of these established brands have recognition in the cassette industry thus far.
The two companies that pose an apparent threat onto Gillette are Sony and Memorex. Both of these companies’ focus are within the electronics industry and are well known for an audio device. Additionally, Sony has been very successful in promoting its radio to the point of success. As the case mentioned, Memorex is also building a competitive staff by hiring ex-P&G personnel and recruiting the Leo Burnett Agency to create their cassette ad campaign. This opens up a few concerns with Gillette’s marketing program. SRD will need to build credibility in the electronics industry as well as compete with the proficient ad campaign from Memorex. It is recommended that Gillette establish a target market immediately to start developing a marketing strategy to implement before the other brand names. Fortunately, the cassette market is forecasted to be growing at a rate of 30% per year leaving Gillette with a large market to consistently tap into.