{"id":19302,"date":"2016-11-18T16:32:29","date_gmt":"2016-11-18T21:32:29","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/online-retailing-and-the-dollar-shave-club\/"},"modified":"2016-11-18T16:32:29","modified_gmt":"2016-11-18T21:32:29","slug":"online-retailing-and-the-dollar-shave-club","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/online-retailing-and-the-dollar-shave-club\/","title":{"rendered":"Online retailing and the Dollar Shave Club"},"content":{"rendered":"<p>In March 2012 Dollar Shave Club (DSC) started selling subscriptions for monthly shipments of razors and blades. Within 4 years of its launch DSC had managed to reach $150 million in revenues, capturing 5% share from the $3 billion-dollar male grooming market [1][2]. By implementing an online direct to consumer business model, DSC took by surprise CPG giants P&amp;G (in control of 60% of the total market with Gillette [3]) and Energizer (with Schick). Their insights were clear; blades are expensive, men don\u2019t know when to replace them, competitors are bound by their relationships with big retailers.<\/p>\n<p><strong>The business model<\/strong><\/p>\n<p>DSC offers an online subscription for replenishment every month \u00a0a new set of four blades and additional male grooming products. Each subscriber that logs into DSC\u2019s web page is asked to choose the frequency of the delivery, and one of three different types of razors; one with two blades, one with three, and one with six. The razor is given for free in the first shipment, and a set of four blades is shipped every month to be changed on a weekly basis [4]. Additionally, the company offers anytime cancellation for the subscription without additional charges. DSC\u2019s success is rooted in:<\/p>\n<ul>\n<li>Trial barrier elimination: The first month of the subscription costs $1 for any kind of razor and $2 for shipping and handling. The new user can try whichever razor\/blade combination without having to pay for the razor at a very low cost compared to traditional razors. Gillette fusion\u2019s retail price is at least four times higher.<\/li>\n<li>Blade replacement: How often blades are changed greatly affects the quality of the shaving experience. One of the key challenges for companies like P&amp;G had been educating its consumers on the frequency of blade replacement. By doing monthly replenishment of 4 blades DSC is successfully training its subscribers to change blades weekly, and by doing so, increasing the perceived quality of the shaving and of the blades themselves.<\/li>\n<li>Online retail: the most important success factor for the model was reaching consumers directly and taking the purchase of blades from the store to the web. Online retail enabled the customers to receive by mail their products without having to worry about going to the store. Additionally, it became a competitive advantage for DSC; the shaving market was a category that existed mostly in stores, a space restricted to big competitors with sophisticated demand forecasting and inventory management, broad retailer relationships, and generous marketing budgets. DSC grew without any of those capabilities by eliminating the retailers from the supply chain. Gillette and Schick could not react immediately, given the risk of the portion of their businesses sold in traditional retailers, who resent vendors bypassing them.<\/li>\n<\/ul>\n<p><strong>\u00a0<\/strong><\/p>\n<p><strong>The operating model<\/strong><\/p>\n<p>The supply model for DSC is relatively simple. DSC sources from different contract manufacturers in China and South Korea [5] and manages in one distribution center small inventories, eased by a \u201cbuilt-in demand forecast\u201d based on the known demand from subscribers. The only significant source of variability in volume comes from the calculations of new users signing subscriptions. It has been reported that DSC charges its subscribers as much as 3 times more for blades and razors as it would cost them to purchase directly from DSC\u2019s suppliers [6]. The resulting high gross margins over low cost blades, and the savings from not paying for retailers front margins, makes DSC financially feasible.<\/p>\n<p>&nbsp;<\/p>\n<p><strong>What next?<\/strong><\/p>\n<p>In July 2016 Unilever announced the purchase of DSC for $1 billion, adding the shaving business to its personal care portfolio in the US, and enhancing the breath of competition with P&amp;G [7]. Not only is Unilever going after one of the largest profit pools of its main competitor, but is also gaining capabilities in online retailing, where the main industry players have seen themselves surprised by startups. As strategic as the purchase may seem, the company will face two challenges:<\/p>\n<ol>\n<li>Can Unilever scale the Dollar Shave Club brand in its current set of customers? To use the scale of Unilever to fuel DSC\u2019s growth the brand could be listed across US retailers. It would come with a challenge on how to deliver the convenience and blade replenishment that made it successful, and how to avoid brand erosion and cannibalization<\/li>\n<li>Can Unilever scale the online retailing model of DSC to the rest of its brands portfolio? The likes of Walmart, Target or CVS, longtime partners of big CPG companies, don\u2019t favor suppliers that bypass them reaching consumers directly. In a market still dominated by brick and mortar stores, Unilever would be facing a tremendous risk with its channel partners expanding the model to other brands. The same reason why DSC succeeded, could be the one reason to limit Unilever\u2019s ability to continue growing it.<\/li>\n<\/ol>\n<p><strong>793 words<\/strong><\/p>\n<p>References:<\/p>\n<p>[1] Bloomberg. Why Unilever really bought Dollar Shave Club. July 2016. https:\/\/www.bloomberg.com\/news\/articles\/2016-07-20\/why-unilever-really-bought-dollar-shave-club<\/p>\n<p>[2] Forbes. Blade runners start up Harry\u2019s bold plan to go after Gillette and Dollar Shave Club. September 2016. http:\/\/www.forbes.com\/sites\/stevenbertoni\/2016\/09\/14\/blade-runners-start-up-harrys-bold-plan-to-go-after-gillette-and-dollar-shave-club\/#1041526b3cb7<\/p>\n<p>[3] Fortune. Gillette shaving Club wars. October 2015. http:\/\/fortune.com\/2015\/10\/23\/gillette-shaving-club-wars\/<\/p>\n<p>[4] Dollar Shave Culb. Company Web Page. https:\/\/www.dollarshaveclub.com\/how-it-works?rel=header-how-it-works<\/p>\n<p>[5] The Economist. Blade Runners. March 2012. http:\/\/www.economist.com\/node\/21551497<\/p>\n<p>[6] Market watch. Does Dollar Shave Really Save? April 2012. http:\/\/www.marketwatch.com\/story\/does-dollar-shave-really-save-1334930885394<\/p>\n<p>[7] Bloomberg. Unilever buys Dollar Shave Club with $152 million in sales. July 2016. https:\/\/www.bloomberg.com\/news\/articles\/2016-07-20\/unilever-buys-dollar-shave-club-with-152m-in-sales<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Unilever and the Dollar Shave Club, can either one make the other grow?<\/p>\n","protected":false},"author":2238,"featured_media":19303,"comment_status":"open","ping_status":"closed","template":"","categories":[2033],"class_list":["post-19302","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-online-shopping"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/digitization-challenge-2016\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Online retailing and the Dollar Shave Club - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/online-retailing-and-the-dollar-shave-club\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Online retailing and the Dollar Shave Club - 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