Gillette, Proctor & Gamble’s powerhouse razor brand, is experiencing challenges from consumer trends and upstart digital competitors. Gillette and close competitor Schick have focused on product innovation and higher prices. Indeed, their cartridges first contained two blades, then three, and now five. Razors now have swiveling balls that let the blades pivot, some used to vibrate, and Gillette recently applied for a patent for a razor that heats up. And with each addition, prices have increased accordingly. Even though Gillette produces excellent products that garnered $1.5 billion in sales last year, it faces threats posed by the continuing consumer trend of “beardedness,” such as the “scruff” or “stubble” look that’s not going away soon. Online upstarts like Dollar Shave Club, Harry’s, and 800Razor.com are also eating away at Gillette’s sales. And when Gillette’s patent expired on its Mach3 razor, rival Schick came out with a less expensive compatible refill blade cartridge. Although still capturing more than 50 percent market share in the men’s grooming market, Gillette’s market share has dropped from 70 percent in 2010. To help win back share, Gillette launched its own Gillette Shave Club in 2016. But the brand’s most significant change was to focus less on product innovation and implement an average 12 percent across-the-board price cut.
Complete the calculation and show your work for the following question.
Assuming a contribution margin of 60 percent, what sales would be necessary to break even (that is, maintain the current total contribution) on the 12 percent across-the-board price reduction?
Refer to Financial Analysis of Marketing Tactics: Price Decrease in Appendix 3: Marketing by the Numbers to learn how to perform this analysis.
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