Are the well known two Razor and Razor Blades industry players making a fool of you? Are they making fun of you? Of course, they do! And I will prove it now in this new "MATH of shaving" episode.
The well-acquainted with the Razor and Razor Blades industry is probably aware of the major new product launch currently organized by the most renowned worldwide leader (we never quote the name of our competitors) for its brand-new, even more expensive, “system razor” (i.e. razor with refill cartridges). For the stake of facility, let's name "BigRazCo" the dominant player we have in mind. The new target market envisioned by "BigRazCo" is UK, where the launch is foreseen...in end of September; hence now or in a few days. As the UK market is a very competitive market (“white labels” brands have more power, for example) and as the major competitor of the worldwide leader is also planning to launch a new model, “BigRazCo” recently announced "The biggest FMCG launch in UK ever". Something that might be key also in their decision to prepare a “big launch”: in UK, there is a small company that produces Razor and Razor blades which also wants to fight against giants. This prominent colleague -and we greet him here- clearly announced that "The War of Razors will soon happen in UK”. It might be in the plan of “BigRazCo”, and the other company, to crush him… Whatever, in his blog, the founder of this small UK Company also quoted some figures, which I will use for my MATH shaving exercise of today (I cross checked the figure, and they seems to be true).
Apparently, the #1 player, "BigRazCo", plans to spend 100 million GBP in marketing for this new launch. The #2 player will be happy with a modest 20 million GBP marketing budget for its own new model. Translated in Euros, this will mean approx 120 million Euros (September exchange rate). Let's now start our calculations: According to World Bank, there are approx. 62 million people in UK. Per capita, the marketing budget of the new razor model is, thus, close to 2 Euros. Let's now assume that 50% of the population are males: thus, per male, “BigRazCo” expects to invest 4 Euros. According to thorough market surveys, 23.4 millions UK males use razor blades and electric shavers, with electric shavers used by 25% of this population. Hence, 17.5 millions UK males are adept of "wetshaving" (Shaving with razor blades). According to another study, disposable razors accounts for 19% of the value of razors& razor blades sold (Good news, as disposable razors are extremely polluting). Considering that shaving with disposable razors is at least twice cheaper, we get to the point that 60% of male "wetshavers" use system razors. Hence, this means that “BigRazCo” wants to spend 12 Euros per “system razors” user: a quite high figure already (as would any Fast Moving Consumer Goods expert notice). But, the reasoning is not finished… Let’s now turn to the graph I prepared for you:
Did you get the graph correctly?
Ok, so let’s continue the calculations. For doing so, I need to dive into my market surveys figures. According to them, “BigRazCo” has a 70% market share in UK and its latest product has got a 25% market share. As you saw on the graph here above, dividing the 120 million Euros expected to be spent by the number of “BigRazCo” clients will mean 17 Euros per customer. Let's now consider, based on these market survey figures, that “BigRazCo” would like to reach a 20% overall market share: The total budget per maximum number of customers would reach an astounding 58 Euros per customer (=expected maximum number of customers for “BigRazCo” new model). And, now, to conclude, let’s consider that “BigRazCo” would only succeed to get one third of its maximum objective - which is a realistic objective, at least in the medium term- then, it would have paid …175 Euros per customer (See graph: “id.” means “idem”. “Id.1.” refers to column 1 and means “same as column 1 but male only”. “Id.5.” refers to the 5th column. Etc.).
Let's be honest, even If I was wrong by a factor of 10, this would have been a huge budget. Why can such huge advertising budgets been spent? Because the two worldwide giants takes, on the back of the customer, extremely high profit margins (These high margins will be the subject of a one my next blog posts). Hence, it is clear that the razor and razor blades players are making a fool of you.
CQFD. More shavings news later...