Issue: Consumers Balk at the High Price of Fusion
Commentary by: David

There is a certain trepidation that a critic feels when challenging a huge brand. Especially when that brand has just been validated by the one of the largest and most successful brand factories. But such was the case last September when we challenged Gillette Fusion and the pricing and product strategy behind this new razor. This month in BusinessWeek, our challenge was validated by Robert Berner and William Symonds.

Our argument in a nutshell was that Gillette had created a monopoly in the shaving business (which had evolved into a minor duopoly when Schick regained some luster with the Quattro) where pricing increases over a decade had far exceeded the innovation delivered to the consumer. For all but the most affluent consumers, the marginal increases in shaving closeness delivered by each successive generation of Gillette razor have been outweighed by hefty price increases in the vicinity of 30%. And don’t try buying in bulk. For years, Gillette has been one of the few companies which reverse prices razor blades, making it more expensive per unit to buy 8 than 4. But inertia and residual brand loyalty kept people coming back and bolstered the stock price, netting former CEO Jim Kilts an absolute fortune when Procter & Gamble acquired Gillette last year.

Now consumers are starting to react. According to Berner & Symonds, sales have been disappointing in spite of a record level of spending behind the brand:

For all that, Citigroup analyst Wendy Nicholson figures that Fusion’s market-share growth has been far weaker than what Gillette saw after the Mach3 and M3Power launches. Mach3’s U.S. market share, excluding Wal-Mart and warehouse-club stores, rose from 6.6% in the launch quarter to 11.7% in the second full quarter, she figures. But Fusion’s has hardly budged, from 10.6% in the launch quarter to 10.8% in the second, she adds. “Given that (the Fusion launch) included two Fusion products, we would have hoped that the initial shares would have been considerably higher,” she writes in a recent report.

From the perspective of this advertising blog, this reaction is nothing more than marketing karma balancing the scales. Gillette took advantage of consumers for too long, increase margin and complicating the product in marginally useful ways. Now consumers are reacting. Unfortunately, many of those who created this mess have already cashed out. We pray that the rest will work hard to add real value to this category.

Here is our first take on the hits and misses of the game, by category:

CELEBRITY

Hit - Desperate Housewives (ABC) - Shaquille O’Neal, Hugh Hefner etc.
Instant Analysis - A nice job of using celebrity to show that absolutely everyone is watching Desperate Housewives. Turns celebrity on its head. ABC does a nice job of using its own time to build one of its own brands.

Hit - Debit MasterCard - MacGyver
Instant Analysis - We reviewed this spot before the game (click here to read review and watch video). It does a great job of bringing the God of Small Things - MacGyver - to the card for small things - Debit Mastercard. A good balance of big-game production value and solid marketing.

Miss - Pizza Hut Cheesy Bites - Jessica Simpson
Replace Carls and Paris Hilton with Pizza Hut and Jessica Simpson and you have this equally irrelevant spot which uses sex in a puzzling way. It not only fails to support the brand - it does not even make sense in context. Click Here to view.

HUMOR

Hit - Sprint Phones - Two spots do a nice job of showing the benefits of high speed phones with TV and downloads for Sprint. The first has the phone with the extra benefit of “Crime Deterrent.” The second is about the music and ends up with a Benny Hill romp around the room. What makes these work is that the humor connects to the product and the brand and the phone is very visible in both. Click Here to view.

Miss - AmeriQuest Mortgage - The ‘Don’t be too quick to judge’ spots are both very funny, but even professionals will have a hard time remembering the brand - which shows up only at the end of each spot. Click Here to view.

CAUSE MARKETING

Hit - Campaign for Real Beauty (Dove) - We have been critical of Dove using the Campaign to sell Dove Moisturizing lotion (click here) but for the Super Bowl Dove used its marketing dollars to promote the campaign instead. In the end, this will do more for Dove than the earlier spots. (Click Here to view)

Miss - The Beer Institute - The Beer Institute? Beer needs an industry group? It was nice to learn all of those foreign words for ‘cheers’ but with Budweiser spending nearly $20 million on the Super Bowl, nobody was going to forget Beer. (Click Here to view anyway.)

NEW PRODUCT INTRODUCTION

Hit - Hummer H3 (General Motors) - This is an older spot we have previously reviewed (click here) but one that worked well for the big game. Even though we would like more face time for the Hummer, this spot reinforces the ruggedness of the brand very well. (Click Here and turn of your pop-up blocker to view the spot).

Miss - Full Throttle (Coca-Cola) - This pre-game epic spot pulls out all the stops to convince you that you’ll be meaner and badder with Full Throttle Energy drink - including running a Red Bull car off the road. At the end we’re confused and Coke is a bit poorer.

Miss - Gillette Fusion (Procter & Gamble) - Not as bad as we had expected from the preview spot, but a flop nonetheless. Gillette does try to give us a plausible reason for adding two blades and draining our wallet further (more contact points equals less pressure equals less skin irritation) but it seems weak and irrelevant. We’re still more interested in real fusion - or maybe cold fusion. (Click Here to view - 2nd Quarter spot.)

OTHER NOTABLES

Hit - Budweiser Clydsdales (Anheuser-Busch) - Anheuser-Busch wasted a lot of money during the big game with spots that were all over, many of which were just forgettable beer commercials. This one, however, connected at an emotional level. Fortunately, the Clydsdales are so closely tied to Budweiser that there is no question which beer the spot is pushing. And the value of authenticity seems like it is Bud’s best brand proposition. (Click Here to view - 3rd Quarter)

Miss - Emerald Nuts - In the early 1990’s in Los Angeles, we learned that random success (like buying some beach property in L.A. in the 1970’s) makes people think they are geniuses. But sooner or later this random-ness fails. After spectacular luck last year with a quirky little spot, these random geniuses failed spectacularly. But perhaps the real nut fans will love it. (Click Here to view)

Brand: Gillette Fusion
Execution: TV
Link: Click Here
Target: Power-oriented Men
Reviewer: David
Rating: **

Description:
This is a preview ad for the Gillette Fusion in typical Gillette style. The spot opens with the new Fusion logo spinning slowly with the tagline “The Future is Fusion” underneath. Then we see a sleek-looking helicopter flying towards a secret laboratory in the middle of the desert. Two scientists enter the lab as the voiceover says “The Time has Come. The Evolution Complete. And the Future is About to Begin.” After another shot of the logo, we see close up shots of the scientists as they are granted access to the inner sanctum. Then they inject the fusion cannisters into the core of the reactor (we suppose.) Another spinning logo shot and the voiceover saying “Gillette Fusion.” The spot ends with “Coming 2-05-06,” under the logo.

What Works:
This spot has very good branding, due to the repeated use of the logo and the establishing shot showing both the logo and tagline “The Future is Fusion.” In fact, the clever choice of inverting the tagline to the beginning of the spot is the only thing that keeps this spot from being utterly confusing (although naming this post “Fusion Confusion” might have been nice).

The CGI graphic animation is top-notch. Everything about this spot says slick, slick, slick.

And we get the message. That five-bladed razor is coming in February.

What Doesn’t:
Don’t blame the agency (BBDO). This spot literally dizzies us with overwhelming graphics and quick cuts. And it screams ‘Terminator IV’. The testosterone drips from every frame of this lavishly produces spot. We get the sense that Gillette does not so much want to shave our face as annihilate each individual hair. And we are scared. Very, very scared.

Branding Bottom Line:
This advertising blog can hardly wait for the Fusion to launch and James Cameron to direct the ads.

Brand: Gillette
Execution: PR (news release)
Link: Click Here
Target: Wall Street
Rating: *
Reviewer: David
Description:
Gillette on Wednesday, September 14th announced the introduction of the world’s first five-bladed razor, the Fusion. The Gillette Fusion razor (photo not available - the picture depicts the M3 Power, the most recent line extension to the Mach 3 franchise) which leapfrogs Schick’s four-bladed quattro will sell for a 30% premium over current Mach 3 razors. This is in line with decades of successful new razor introductions for Gillette with steeply increased prices over previous generations.

What Works:
As a PR strategy, Gillette has certainly succeeded. The press has bought the PR story hook, line and sinker and even the Wall Street Journal, asking the soon to be $165mm richer Gillette CEO Jim Kilts seems content to end their in-depth analysis of the new product introduction with Kilts quote “Men are always looking for a better way to shave.”

Businessweek virtually trips over itself to heap praise on Gillette after it cautions “…seems like a classic case of overkill,” but quickly moves to explain that, “The overkill logic may seem compelling at first glance, but it’s off-base on closer inspection. Despite its high price, the launch of Fusion is probably the closest thing to a slam-dunk in the intensely competitive consumer-products industry, where many new products never gain traction. It should be a huge boon to Procter & Gamble (PG ), which is expected to wrap up its acquisition of Gillette this fall.” Of course, this is the same magazine that praised Enron, WorldCom and the AOL/Time Warner merger.

So clever is the spin on this announcement that Kilts and Gillette have successfully changed the dialogue on shaving from the question of reality (do five blades give you a better shave?) to perception (how do men feel about it). And the answer of course is that men are twice as likely to say they like the new shave.

Not a single of the myriad articles spawned by this announcement questions Gillette’s test methodology. There are valid questions to ask. There is a reason that clinical trials are conducted using a double-blind method (where neither the patient nor the doctor or clinical investigator knows whether what’s being administered is the test drug or a placebo). The reason is that when people are using something they know is new in a test they are more likely to think that it is helping them. So it is no surprise that men encountering 5 blades for the first time might think they are getting a better shave regardless of whether they actualy cut themselves less or are able to shave closer to the skin without abrasion or ingrown hairs. And there is similarly no evidence that Gillette has told anyone whether that is actually the case.

So Gillette has done a fantastic job in selling this new razor to the press, to Procter & Gamble (for whom the value of this razor is a key part of the acquisition price), and will undoubtedly do the same job on consumers when the blade hits shelves.

What Doesn’t:
How could we possibly argue that a brand which has successfully raised its selling price by about 30% every 6-8 years for the past several decades could be wrong? Gillette is one of the great branding success stories isn’t it?

We believe it is not. Every brand rests on a value proposition. That proposition gives consumers something they need (a functional benefit) and something they want (an emotional benefit) and charges a price to get it. In competitive markets, this value proposition is enforced by competition. If I don’t offer a fair value for the money, someone else will and they will steal customers and market share.

Gillette has so dominated its space in the past two decades that it is not truly in a competitive market. We believe that Gillette has essentially created a hostage brand which is able to extort money from consumers by undermining confidence in competing products. By holding commanding market share, dominating advertising and dwarfing competitive R&D spending, Gillette has essentially become the only acceptible alternative in shaving. And once dominating this market, they have charged monopoly prices to consumers and stifled innovation. We would argue that this is bad marketing and bad business.

What possible proof is there that this is the case? The product development cycle holds the first clue. Which product is more complex - automobiles or shaving systems? With tens of thousands of moving parts and computers, automobiles are vastly more complex than razors. Yet why do automotive companies now have a 3 to 4 year product cycle (the average time between substantial new product introductions in a particular brand line such as Honda Accord or BMW 5-Series) while Gillette has waited 8 years to move from the Mach 3 to the Fusion? The only answer is the lack of competition.

We have argued in the past that paying $4 or more for a cup of coffee can be a fair value exchange. So why will paying $3 dollars a razor not be? Because it is not at all clear that we have ten times the shaving experience that we had 15 years ago. Because unlike Starbucks which has to compete with everyone from Dunkin Donuts and local coffee shops to McDonalds and truck stops, Gillette was virtually without competition until Schick started stirring the pot with Quattro.

The regularity and degree of the Gillette price increases are also powerful proof of Gillette’s monopoly behavior. Very few categories sustain these increases unless they are dominated by a monopolist. Many categories offering the most innovation, in fact, behave in just the opposite manner - prices fall even as product performance improves. We need to remind ourselves here that Gillette is not selling itself as a fashion brand here - the advertising has very long been centered on power and performance (to an extent that might make one wonder if there is a bit of overcompensation on the part of Gillette senior management). This being the case, the price increases should be sustained purely on the improvement of shaving performance. Which makes us suspicious that Gillette has not made a stronger scientific case for Fusion.

We have very high regard for Procter&Gamble, but we have to wonder if they are overpaying for Gillette. We also have to wonder whether executing the acquistion of Gillette while at the same time trying to launch the first new razor line in 8 years is a very good idea. This advertising blog is not comforted by CEO Jim Kilts assertion that “someday there will be a Harvard Case Study on this transition.” We think there will be a case study, too - just not one that Kilts will enjoy reading. We certainly hope that having acquired Gillette, P&G will carefully consider the value proposition and how it might be improved.

Branding Bottom Line:
Gillette launches the Quintippio - oops, Fusion - and we grab our back pocket to see if they’ve lifted our wallet yet.