EIS Mini Project
Luc Maasdorp, Sam Thacker, Sarah Bell
Section 1
Harry’s
“Great Shave. Fair Price. Simple”
Harry’s is a start-up that sells razor blades,
handles, and other men’s grooming products almost
exclusively online. At launch, they offered 6 handle
designs differing mostly by color, that aimed to be
“less futuristic and cheesy” than existing handles on
the market. They also offered a 5-blade cartridge
system that purportedly could help one achieve a closer shave through increased tension on the skin and a
shallower angle than existing cartridges on the market. While these product differentiators are important
to the Harry’s consumer, the real value that Harry’s offers is in the user experience before, during and
after purchase. Harry’s aims to provide better information about products in an easy-to-use, beautifullydesigned website interface to help customers determine the best product for their needs. Harry’s attempts
to make the check-out process as easy as possible, reducing number of clicks required, amount of required
personal information, and time spent waiting for pages to load. After purchase, Harry’s has invested in
systems to allow prompt packing and shipping times, and has strategically located third-party warehouses
to decrease the amount of time that packages spend in transit. Harry’s pays a premium to shipping
partners to ensure packages make it to their destinations on time, and to get information about problems
that may arise. Finally, Harry’s employs an expert customer service team to field post-purchase inquiries
about returns, product dissatisfaction, and other post-purchase problems to fix problems and make sure
each customer has a positive experience with Harry’s. In addition to well-designed products and a superb
customer experience, Harry’s offers its products at a fraction of the cost of other major manufacturers: a
Harry’s blade cartridge is about half the cost of the average Gillette cartridge.
Harry’s value proposition can in large part be summed up by its slogan – “Great Shave. Fair
Price. Simple”. By this description, the company appears to have three key dimensions to its broader
value vision: product, price and customer experience. By examining each of these dimensions we begin to
appreciate how Harry’s is able to deliver value to its customers. Moreover, by examining these elements
in the context of Harry’s ecosystem and supply chain configuration, we begin to appreciate how and why
Harry’s is able to compete with the all-powerful market incumbent, Gillette.
Let’s begin by examining the “traditional” ecosystem – the lens through which Gillette (with
~80% of the US market share) views the world. See figure 1 below:
The first key observation is that Gillette is vertically integrated. That is, the manufacture,
warehousing, design, sales and marketing functions are all done in-house. While this structure may have
some advantages (e.g. high degree of control across the supply chain), it most likely comes at a price. By
keeping all these functions in-house, Gillette is potentially subject to a higher cost structure across each
function than a specialized player would be. For example, a specialist producer of steel blades can
potentially drive a lower cost per unit through scale. This may include a lower fixed cost per unit, as well
as manufacturing efficiency as the specialist accelerates its learning curve. Admittedly, given that Gillette
is such a dominant player, they may well have a scale advantage over smaller niche specialists (blades,
for example) based purely on their size. However, it is unlikely that Gillette maintains such an advantage
across all its in-house functions, which means that a competitor that utilizes specialist out-sourced
suppliers can drive a cost advantage by doing so. The second cost disadvantage that a vertically integrated
player faces is a lack of flexibility. Particularly in a market downturn, it is very difficult for a vertically
integrated player to take costs out of the supply chain. A razor blade factory, for example, may employ a
thousand workers and require tens of thousands of dollars in maintenance CAPEX each month. Scaling
down such costs in a market downturn may prove impossible for Gillette, whereas a competitor who outsources would likely cut back purchases from a supplier as needed, leaving the supplier of goods or
services to bear the risk of a downturn.
The second key observation is that Gillette sells predominantly through big box retailers. This has
several implications. First off, dealing with big box retailers such as Walmart and Target is no small feat.
To do so usually requires a significant investment in people and infrastructure. Moreover, the demands
that large retailers place on suppliers are significant, especially in terms of delivery, price and
promotional support. With large retailers under constant pressure to maximize revenue and profitability
per retail square foot, there is no space for poorly performing products, literally – those products that
cannot assure performance simply do not get allocated shelf space. For a small start-up such as Harry’s to
secure shelf space in such an environment would likely be impossible. Moreover, to make the investment
in people and infrastructure to meet the retailers’ various other requirements, such as just-in-time
delivery, would be prohibitively expensive. The fact that Gillette is a particularly powerful brand, and is
now part of P&G – arguably the most powerful consumer products company worldwide – certainly adds
to its bargaining power with big retailers. Gillette’s 80% US market share speaks for itself in this regard.
This success does not come without a price, though, and leads us to our third key observation: Gillette
relies heavily on costly traditional media for its marketing efforts.
Most people who grew up with access to a television are probably familiar with Gillette’s TV
slogan which concludes its commercials – “Gillette, the Best a Man Can Get”. This didn’t happen by
accident. Rather, it is a function of heavy investment in traditional media – especially TV – over many,
many years. What makes Gillette’s advertising campaign particularly effective (and expensive), however,
is its use of highly prominent athletes featured in its ads. These include Tiger Woods, Roger Federer,
Alex Ovechkin, Derek Jeter, Thierry Henry, David Beckham, Dave Chappelle, Dale Earnhardt, Jr., Ray
Rice, Denny Hamlin, Matt Ryan, Carlos Gonzalez, Evan Longoria, Ryan Lochte and Kyle Busch. Suffice
to say, these individuals don’t work for free.
Herein lies one of Gillette’s greatest strengths… and weaknesses. Their ability to exert such
leverage over retailers with their high market share and dominant brand means that it is virtually
impossible to compete with Gillette in a retail setting. Schick, the number two player, has tried for years,
and for the most part, has failed. But this is also a potential weakness, for without constant and significant
investment in sales and marketing efforts, Gillette is at risk of jeopardizing its source of significant
competitive advantage: leverage over the retailers.
Let us now contrast Gillette’s traditional ecosystem and supply chain with that of Harry’s. See
figure 2 below:
There are a number of key observations here. First and foremost, notice that Harry’s does
relatively little in-house. They have chosen to outsource the manufacture, warehousing and delivery of
their product, leaving the “high value add” functions such as design, sales and marketing at the core of
their operations. This choice has obvious implications in terms of reducing costs and increasing flexibility
(as per prior assessment of Gillette). The second, and most important, observation is of course that
Harry’s sells online. As with Gillette’s choice of sales channel, this decision has several important
implications. The first of which is that Harry’s doesn’t have to deal with big retailers. Translated, Harry’s
doesn’t have to compete head-to-head with Gillette for shelf space (a battle it would lose); it doesn’t need
to spend copious amounts on the personnel and infrastructure required to deal with big retailers (capital it
likely wouldn’t attract), and Harry’s doesn’t need to advertise through costly traditional media channels to
drive competitive advantage. But there are other more subtle advantages to selling online as well. First,
Harry’s is in direct contact with its customers during the sales transaction, and essentially owns that
relationship. Gillette, selling through retailers, does not. Second, Harry’s aims to sell directly to men, and
does. Conversely, Gillette, for the most part, advertises to men, but sells to women, who still make the
bulk of purchases at big box retailers.
Another key implication of selling online is that it introduces additional participants to the
ecosystem. Online sales require an online sales platform, which has a number of moving parts. Internet
service providers (ISPs), for example, are integral to the ecosystem, as are the hardware (PC and mobile)
producers, software producers, and web developers. And let us not forget about the importance of wellestablished and safe online banking system to Harry’s model. Further to this, Harry’s decision to sell
online adds an additional step to the supply chain that Gillette doesn’t face: delivery. Once again, we see
the introduction of new participants in the ecosystem here, with the United States Postal Service (USPS)
and couriers integral to Harry’s business model.
Harry’s success as an emerging player in a mature market has been driven largely by two
strategic decisions. First, they understood where to innovate. Critical to this decision is an understanding
of the evolution of both technology and demand in the razor industry. Secondly, Harry’s figured out how
best to innovate. A carefully designed and deployed strategy in both regards has contributed largely to
Harry’s successful entry into the men’s shaving market.
The last two decades have seen no shortage of technological advances in men’s razors. Year after
year, established players such as Gillette and Schick add additional blades, swiveling heads, lubricated
moisturizing strips, and battery powered vibration to their products in hopes of providing consumers with
a closer, more comfortable shave than ever. The evolution of offerings from such firms highlights their
focus on technological innovation (Exhibit 1). Of course, every “new and improved” razor represents
additional costs in the forms of R&D, component costs, and new advertising campaigns. As these costs
get passed on to the consumer in the form of higher prices, companies hinge their success on a belief that
“performance improvement is the binding constraint on increasing willingness to pay over time” (Adner
30). They feel that consumers will derive more utility from extra performance than extra dollars.
Harry’s, on the other hand, seems to have taken a demand-focused approach when assessing the
technology life cycle of the industry. More specifically, the firm appears to have taken the position that
the demand S-curve has matured ahead of the technology curve. Their refusal to participate in the razor
technology arms race results in products that are “less futuristic and cheesy” and suggest a strategy based
on the seemingly contrarian belief that, in the men’s shaving business, “willingness to pay for
performance is the constraint on increasing willingness to pay over time” (Adner 30). That is, Harry’s
strategy is built upon a belief that consumers will derive more value from lower-costs than slightly
snazzier razors.
This approach informs a strategy focused on costs and process innovation. Indeed, Harry’s seeks
to lower the total cost to consumers in two distinct ways: by offering lower prices and by increasing the
efficiency of a consumer’s razor-buying experience, thus saving them time. A cost advantage relative to
competitors facilitates Harry’s low-price approach. One way Harry’s is able to realize lower costs is by
remaining horizontally disintegrated. Components are sourced from third party providers while assembly
is outsourced and offshored. Advertising is non-existent as is distribution since the company removed
retailers from the ecosystem. Harry’s focuses solely on the customer-facing opportunities in the value
chain – sales and customer service. This disaggregation of the value chain allows Harry’s to realize the
benefits of economies of scale at each step and ultimately, provides them with a lean cost structure which
allows them to pass on savings to consumers. Perhaps more important however, is the capital that it frees
up for other uses. Because Harry’s does not spend money on R&D, high-cost fixed assets, or pricey
marketing campaigns, the company can invest in the technology that has allowed them to remove retailers
from the ecosystem. Selling directly to consumers allows Harry’s to deliver the second form of cost
savings mentioned above: efficiency in the purchase experience.
Indeed, perhaps the most important part of Harry’s value proposition lies in the quick and
convenient customer experience that the company provides. Rather than driving to a store only to be met
with an array of different products all offering different versions of the “latest and greatest” in razor
technology, Harry’s customers navigate an easy-to-use website which clearly presents all of the relevant
product information and facilitates a simple check out procedure. Moreover, they can do all of this using
a computer in the comfort of their home, a laptop at the office, or a smartphone on the road.
Circumventing retailers (and thus, distributors) not only lowers monetary costs, but also lowers the timecost of purchasing razors for consumers. In aggregate, both kinds of savings equate to added value for the
customer.
Harry’s recent success in the men’s shaving segment seems to confirm their hypothesis that
consumers are assigning decreasing marginal utility to technological advances in razors. Upon
recognizing a decreasing willingness to pay for performance, Harry’s effectively focused its efforts on
reducing the costs of “good enough” technology and thus continues to attract new and loyal customers.
Exhibit 1 Evolution of Razor Technology
From left: Gillette Sensor (1990), Gillette Mach3 (1998), Gillette Mach3 Power (2004), Schick Quattro
(2003), Gillette Fusion (2006), Gillette Fusion Power (2006)
Source: http://www.shavingstuff.com
Sources:
Adner, Ron. “A Demand-based Perspective on Technology Lifecycles.” Advances in Strategic
Management 21. (2004). 25-43.
Neufeld, Robert. “A Parade of Razors.” Shaving Stuff. 13 February 2006. Web. 06 October 2013.