Gillette Case Write Up
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?
After calculating the options for all three quality levels, it makes the most sense to enter the market with standard quality blank tapes to be sold at a retail value of $1.95 ($0.97 sales price to the retailer). This decision came primarily as I compared the break-even quantities for each product quality level in comparison to the total market share for blank tapes. My calculations show that Gillette will need roughly 32% (7.5 million units) of the standard quality market share to break even, while needing 769% of the budget and 59% of the premium market shares respectively. I will accept the recommended advertising budget from our advertising agency of $2 million in the first year and $1.2 million for each subsequent year.
2. How many cassettes do you expect to sell in year 1? Year 5? What market share does that represent?
Gillette is moving into a new market with a large advertising budget and a strong distribution chain. I expect sales in the first year to reach 3.495 million units, or roughly $3.39 million. This would represent a 15% market share of the standard quality market. With a projected market growth rate of 30% each year and an annual advertising budget of $1.2 million, sales figures are expected to grow to 23.96 million units ($23.24 million) in year five. This figure will represent a 36% market share.
3. How much money will the firm make? What is the break even for your plan?
With only projected market share of 15% in the first year, I project Gillette will operate at a net loss of $1.6 million, however, will begin to turn a net profit of $830k in year two with 25% market share. The break even point is projected to come early in year three when Gillette’s market share reaches 30% and annual net profit of $2.73 million.
1. What are your decisions about the quality level(s), prices and advertising expenditures to offer for blank cassettes?
After calculating the options for all three quality levels, it makes the most sense to enter the market with standard quality blank tapes to be sold at a retail value of $1.95 ($0.97 sales price to the retailer). This decision came primarily as I compared the break-even quantities for each product quality level in comparison to the total market share for blank tapes. My calculations show that Gillette will need roughly 32% (7.5 million units) of the standard quality market share to break even, while needing 769% of the budget and 59% of the premium market shares respectively. I will accept the recommended advertising budget from our advertising agency of $2 million in the first year and $1.2 million for each subsequent year.
2. How many cassettes do you expect to sell in year 1? Year 5? What market share does that represent?
Gillette is moving into a new market with a large advertising budget and a strong distribution chain. I expect sales in the first year to reach 3.495 million units, or roughly $3.39 million. This would represent a 15% market share of the standard quality market. With a projected market growth rate of 30% each year and an annual advertising budget of $1.2 million, sales figures are expected to grow to 23.96 million units ($23.24 million) in year five. This figure will represent a 36% market share.
3. How much money will the firm make? What is the break even for your plan?
With only projected market share of 15% in the first year, I project Gillette will operate at a net loss of $1.6 million, however, will begin to turn a net profit of $830k in year two with 25% market share. The break even point is projected to come early in year three when Gillette’s market share reaches 30% and annual net profit of $2.73 million.