Taking over the Big Boys: Cracks from gouging monopolies
When a company achieves the leadership position, it often has better margins. When leaders become near monopolies and raise prices too high, a new crack in the market can emerge. Gillette safety razors are a perfect example of this kind of niche creation.
The razor is thousands of years old, but the safety razor was not patented until 1901. Replacing the straight razor, it was a safer razor for non-professionals. Barbers still use the safety razor today.
Later, Gillette added the double edged razor and the twist handle for easy removal, both nice innovations that further developed the niche they created. Many years of prosperity followed.
But over the years, Gillette and co-monopolizer Schick extended their brands by adding additional blades. Two is twice as good as one, so four should be four times better, right? All these blades (that supposedly work better), should cost more right? So the cost moved up. . . and up. The cost today can be up to $4.00 per blade, or depending on when the blade is changed, over $200 per year.
Of course,Gillette sells a great “shave” using sex, and space age design and as we illustrate in Finding Your Crack in the Market, perceived value is in fact created. Or is it? The lower price quality shavers have disappeared. The two big guys could easily hold on to this lead by controlling the TV advertising. Small start-ups had difficulty financing such large mass market buys.
But as Gillette sat on its laurels, pushing up the company value based on huge profits, some saw the low price value crack open up. First Dollarshave introduced a low cost shave, and emphasized its cost. Then Harry’s followed.
Rick Harrison of Pawn Stars recently hit TV advertising with the Micro One Touch shaver. It lowers the price as well, but rebuffs the quality perception by saying, “one blade is just as good as multiple blades.” This statement has the potential to cut the quality legs out from under Gillette and Schick.
This new crack in a very traditional and large market is plenty large enough for several new low cost providers to do well in. Leaving the back-door open to a flanking attack on the market is a major mistake by the big shavers. Of course, they have the resources to counter-attack, but will have to do so in a way as not to harm existing brands or risk truthfulness in past advertising.
The Internet has a part to play in this developing battle. Using the Internet, social media and customer email communication, little shavers can talk directly to customers in a way that cannot be inhibited in traditional media. The big shavers can do national advertising and take much of the new low price/high quality business, but once the customer is made, maintaining these customers can be done at very low cost, while national advertising takes lots of customers who must come from the existing high-price customers.
We will continue to watch this new crack develop and keep you informed.