Gillette Case

Gillette Safety Razor Division: Blank Cassette Project

1. What are your decisions about the quality level(s), prices and advertising expenditures to offer for blank cassettes? Because a 60 minute tape is the standard in the industry I decided to use that length for the tape. After calculating the three different quality options I found that it makes most sense to enter the market with a standard quality blank tape; to be sold at a retail value of $1.95 ($0.98 sales price to the retailer). This is if I accept the advertising budget from our advertising agency of $2 million in the first year and $1.2 million for each subsequent year and $500 thousand in overhead. This is also assuming that the market share will be divided at 50% for budget, 35% for standard, and 15% for professional.

2. How many cassettes do you expect to sell in year 1? Year 5? What market share does that represent? Because of Gillette’s large advertising budget, strong distribution chain, and brand recognition. I expect we will gain 20% of the market share of the standard quality market. At 20%, sales in the first year would reach 4.577 million units, or roughly $4.44 million. With a projected market growth rate of 30% each year and the annual fixed costs at $1.7 million, total market sales figures are expected to grow to 65 million units ($127 million) in year five. If we were able to maintain a 20% market share sales would sale 13 million units, or $25.5 million.

3. How much money will the firm make? What is the break even for your plan? With a projected market share of 20% in the first year, Gillette will operate at a net loss of $1.62 million. But if Gillette maintains a 20% market share it will begin to turn a net profit of $330k in year two. The breakeven point will be met in year two as soon as Gillette reaches 4.2 million sales, or $4.15 million. They are expected to sale 4.58 million, or $4.49 million.