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Would You Spend $1.50 For A Razor Blade?

News: Analysis & Commentary: MARKETING


Gillette is betting a billion that the answer is yes

In April, 1995, Gillette CEO Alfred M. Zeien went to his board with an audacious proposal. He wanted the green light to develop a new triple-bladed razor that would require "the biggest capital investment in our history," he recalls. Not surprisingly, the directors--including Warren E. Buffett--asked to see the goods. But Zeien refused, holding firm even after one director argued that "we have the right to ask any question we want." It wasn't until last November, when the Mach3 was rolling off a production line in South Boston, that the board finally got to try Zeien's brainchild.

After more than a decade of work and $750 million in development and tooling costs, the Mach3, introduced on Apr. 14, will arrive in stores starting July 1. That's a staggering sum for a razor: roughly equal to the global razor-blade sales of number two Warner-Lambert Co., which owns Schick and Wilkinson Sword. Zeien vows that the investment--plus $300 million more for advertising and marketing over the next 15 months--will propel Gillette Co. and its stock into the millennium.TEST FLIGHTS. That means convincing millions of men--and eventually, millions of women--that the gee-whiz technology that Gillette has poured into Mach3 produces enough smoothness and comfort to justify an eye-popping 35% price increase over the SensorExcel, Gillette's current top-of-the-line product. That's the most aggressive price hike Gillette has ever attempted for a new razor, and it comes at a time when most consumer-products companies struggle to pass on even single-digit increases. "It is a hell of a risk," argues Jeffrey Hill, managing director of Meridian Consulting Group in Westport, Conn., since "consumers are far more satisfied" with today's shaving products than they were when Gillette launched Sensor in 1989. Investors agreed: Gillette's stock slipped $6, to $118, by Apr. 15, the day after Mach3 was announced.

Will it fly? John M. Darman, Gillette's vice-president of male shaving, brags that the ad campaign, heavy with Top Gun imagery, is "off the charts" in its ability to motivate men from France to Florida to "take Mach3 for a test flight." Amy Low Chasen, an analyst at Goldman, Sachs & Co., believes that the Mach3 will generate annual revenues of $1 billion by 2001.

But men will only stick with Mach3 if it lives up to the hype. Gillette has applied for 35 patents on Mach3 and the manufacturing process used to make it. In addition to its three blades, Mach3 features six other innovations, including a new method of loading cartridges and a new blade edge, applied atom by atom with chipmaking technology.

It could be technological overkill, though. Zeien says that even at Gillette, "a lot of people argued we should simply put out a Sensor3 product." That would have cost less--and allowed Gillette to build on the installed base of 400 million Sensor razor handles already sold.

Still, he believes that an all-new triple-blade razor will pay off handsomely. As early as 1992, Gillette's researchers already had a "Manx" prototype that in tests "was beating the pants off our best product, SensorExcel," says Thomas L. Gallerani, vice- president of Gillette's shaving technology lab. Zeien then insisted that Manx would have to have a radically new blade edge, too. This edge, known as DLC--for diamond-like carbon coating--is three times stronger than stainless steel and allows Gillette to use much thinner blades. Problem is, DLC also helps blades last longer.

To help combat the problem, Mach3 features a blue "indicator strip" that will fade to white as the blades are used and signal when it's time for new ones. Darman concedes that fewer cartridges will be sold. "Our best guess is that consumption will fall 10%," he says. However, if he's wrong and consumption drops much more than that, Mach3 could be a disappointment.SLO MO. The Mach3 is so complex that Gillette has developed a new manufacturing process for it. Eventually, the plant should spit out 600 cartridges a minute, three times more than the process used for Sensor, says Michael T. Cowhig, the senior vice-president for manufacturing who oversees Mach3. But six months into production, the process is still running at just 250 cartridges per minute.

Will Mach3 move as fast as Gillette expects? Even if consumers agree that it's a big improvement over Sensor, will they like it enough to pay $1.50 for a cartridge--the biggest premium in shaving history? They'll be paying for high tech and the promise of fewer nicks and less irritation. Or, for $2 they can still buy a 10-pack of disposable razors.By William C. SymondsReturn to top

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