Operating on a razor's edge.

Photographer: DESIREE MARTIN/AFP/Getty Images

Dollar Shave Is Good Enough (for Some People)

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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So Dollar Shave Club, the Santa Monica, California, razor-blade startup, has gone and sold itself to Unilever for a billion dollars. The five-year-old company hasn't made a profit yet, but it's already selling more than 15 percent of the razor-blade cartridges in the U.S.

Wrote independent analyst Ben Thompson in a typically astute analysis of the deal:

According to the traditional way of measuring marketshare Dollar Shave Club only has 5% of the U.S.; the discrepancy is due to the massive price difference between Dollar Shave Club and Gillette. And yet, the price difference is the entire point: in a world with good enough products (Dollar Shave Club imports their blades from Korean manufacturer Dorco) that can be bought on zero marginal cost websites and shipped to your home directly there is no reason to charge more.

Thompson’s explanation, cribbed in part from the brilliant promotional video by Dollar Shave founder Michael Dubin that launched the brand in 2012 (and has been viewed 22.9 million times since), is that Gillette customers are paying for parent Procter & Gamble’s big research and development budget and even bigger advertising budget. The R&D spending had reached the point of severely diminishing returns, so Dollar Shave was able to offer good-enough razors at a fraction of the price.

That all sounds about right. Even though, after trying Dollar Shave for about six months, I recently went back to my expensive Gillette Mach3 cartridges ($25.99 for an eight-pack at my local online grocery) because the Dollar Shave ones actually weren’t good enough.

I loved pretty much everything else about Dollar Shave -- the Dr. Carver’s Easy Shave Butter and Magnanimous Post Shave Cream, the price, the ease of ordering and of not ordering (unlike a lot of subscription services, it’s easy to get them not to send you stuff). But the blades, not so much. I tried the 4X, the six-blade Executive and the Humble Twin and didn’t like any of them. They left me with rawer skin, more cuts and more stray whiskers than the Gillette blades did.

Now, this actually fits the classic Clayton Christensen model of low-end disruption to a tee. The Dollar Shave blades are clearly good enough for lots of customers, especially those more price sensitive than I. They’re maybe not good enough to convert most long-time Gillette users, but that’s OK for now. And over time the blades will probably get better, especially with Unilever’s deep pockets now backing Dollar Shave.

In the meantime, I’m going to try Harry’s, the New-York-based Dollar Shave rival that has put more of a focus on blade quality. Harry’s bought a factory in Germany to make its blades, and charges about 25 percent more for them than Dollar Shave does for its top-of-the-line offering. It’s still about half what Gillette charges for blades through its online shave club, though. The Great Shaving Disruption will continue.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
Susan Warren at susanwarren@bloomberg.net