South-Westerns' Economic News Summaries
The Nine-Blade Razor Can’t Be Far Behind…
Subject New five-blade razor to be introduced from Gillette.
Topic Product Markets, Oligopoly, Product Differentiation
Key Words

Gillette, Schick, Fusion, Mach3, Quattro, advertising.

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Reference ID: A136476730
News Story

Gillette is convinced that men continually seek a better, closer shave. In the first quarter of 2006, it will launch the Fusion, the first five-blade razor, in both manual and battery-powered versions.

Gillette anticipates spending about $100 million in aggressive advertising to win back market share from Schick, which introduced the four-bladed Quattro two years ago, and which intends to come out with a power-version of the Quattro in the near future. Since 2003, Gillette’s market share has fallen from 86% to 81%, and Schick has picked up that market share, increasing from 10% to 16%.

Gillette has been forced to react to market “needs” more quickly, significantly reducing its product innovation cycle. Gillette went 27 years with only twin blade razors; in 1998 it introduced the Mach3 razor with three blades. In 2003, it introduced the M3 Power, which vibrated over the skin with the help of a battery. However, shortly thereafter, Schick one-upped Gillette by introducing the Quattro, the four-blade razor. Now, seven years later, Gillette leap-frogged over the four-blade razor to push the envelope with the Fusion.

Since its focus groups have indicated that men prefer the five-blade razors to the Mach3 razors by 2-to-1, Gillette has no doubts that people will be willing to pay $10-$15 for a new razor, and $12-$13 for a four-pack of replacement blades.

Questions
1.

Consider shaving a production process, with the output being a clean, close shave. How does diminishing marginal productivity play a role in how many blades a razor can have?

2. What would happen to the elasticity of demand for the Quattro—and for the Mach3—razor when the Fusion comes on the market next year? Why?
3. Does the significant spending on advertising the Fusion amount to a prisoners’ dilemma? Why or why not?
Source Jack Neff. “Six-Blade Blitz.” Advertising Age. 19 September 2005. v76, i38. p.3.
Sarah Ellison and Charles Forelle. “Gillette’s Smooth Bet: Men Will Pay More for Five-Blade Razor.” The Wall Street Journal. 15 September 2005. http://www.wsj.com
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