Economics, Pethokoukis

Competition, disruptive innovation, and men’s razors

Competition spurs innovation, even in low-tech industries. Take shaving, for instance. The Wall Street Journal reports that Procter & Gamble has created a new flexible razor mounted on a ball bearing. Sounds to me like a version of a Dyson vacuum. Anyway, BloombergBusinessWeek explains how a new competitor is forcing both a product and business model change:

But here’s the true innovation: Gillette’s new razor will use P&G’s current blades, a total departure from the notorious razors-and-blades model that has characterized the segment since Civil War beards went out of style the first time. The razor has typically been just a cheap vehicle to sell expensive blades, locking customers into a proprietary platform. … But that brilliantly simple business model may finally have worn thin, thanks to e-commerce startups such as Dollar Shave Club and Harry’s. With a heavy dose of humor, some cheap Asian suppliers, and sharp customer service, these companies started convincing consumers that razors were a commodity, not high science. In October, Dollar Shave Club had 330,000 members and gathered another $12 million in venture capital.

Meanwhile, Gillette’s revenue from its grooming segment—mostly razors and blades—dropped in its last fiscal year for the first time in five years. … Which is exactly why Gillette’s new ball-bearing device is so fascinating. Its launch suggests those cheap blade subscription services have been trimming the brand’s business. Gillette has even cobbled together a razor-blade subscription service of its own via retail channels such as Amazon.com and Drugstore.com.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

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