The commercial from DollarShaveClub.com (DSC), that went viral in 2012, is a wonderful example of customer-focused, direct-to-consumer marketing. This week Unilever bought the startup for a mere $1 billion.
Allthough DSC is still far behind on Gillette (70% global marketshare), this could be a much better deal, in every sense of the word, than the $57 billion paid for Gillette by P&G 11 years ago. First, let me remind you of the video that got it all started:
In the commercial, Mike (Michael Dubin, acting as himself), is breaking ground for high quality men’s razor blade cartridges based on a fair-priced subscription model. A direct attack on the business model of marketleader Gillette.
The business model of Gillette, named the Razorblade or Gillette business model (or the Bait & Hook model as described in the Business Model Generation), is a business tactic involving the sale of dependent goods for different prices – one good is sold at a loss or very low margin, to enable selling volumes of another higher margin product.
Today, DSC is serving more than 3 million people with their subscription-based razor blade cartridges with a 15% marketshare in the US, and even managed to evolve itself to a trusted men’s lifestyle brand.
Source: Medium – David Pakman, VC at Venrock: “.. it was clear he (Michael) had enormous ambition and intended to build a dominant men’s lifestyle brand that went far beyond razors. He intuitively understood how to use content and conversation as marketing at a time when legacy brands were still shouting at their customers with TV ads, purchased without actually knowing their customers. He believed in transparency, making great products, and putting convenience and value first. And he knew it was crucial to build a trusted and beloved brand, albeit one that is entirely direct-to-consumer.”
Gillette at first did little to respond, giving DSC every opportunity to gain marketshare. After three years the company reacted with little creativity: they started their own Gillette Shave Club. Gillette’s subscription offering is competitive: $16.99 for one razor handle, 5 blades and shaving cream -if you so prefer- per month or per 6 months.
In fact, the Gillette offering seems better than the offering of DSC, because DSC wants to persuade their members to buy 4 razor cartridges every month or at most every two months (from $1 to $9 per month, while the $9 version is ‘member favorite’).
So, in light of the seemingly effective reaction of Gillette:
Q1 – Can a subscription-based model survive in consumer packaged goods (CPG)?
Despite the success of DSC, we’ve seen companies fail in the Netherlands in the persuit of a subscription-based model in the CPG-market. Dat Zit Wel Goed tried to sell men’s underwear on a subscription basis, but were unable to convince sufficient customers and pulled out of the market. Mudjeans tried it with its concept ‘Lease a Jeans’, but stopped offering the service after three years and went bankrupt.
There are a couple of factors that are required for a subscription-based model to be successful, but those that stand out for me are convenience, significance and loyalty.
Spoiler-alert! If you take an old razor blade cartridge and rub it over a pair of denim jeans, even leased ones if you like, the blades will become sharp again, extending the lifetime from a couple of weeks to up to 6 months. So 2-4 cartridges per year should be enough.
Q2 – Is it convenient to get razor blade cartridges delivered to your doorstep?
Maybe if you live in rural areas, but picking up a set of blade cartridges during a normal shopping routine seems to me like a no-brainer. I really can’t see the convenience in singling out razor blade cartridges from normal groceries?
Moreover if you compare the cost: realistically 2-4 cartridges per year might set you back for a mere 10 bucks, while the cheapest offer by DSC will cost you $12. The ‘member favorite’ will even relieve you from a whopping $108 per year.
Q3 – Are razor blade cartridges significant enough?
Most men need to shave daily and most prefer to do this hygienically. That makes the blades relevant to them. But significance isn’t just about needs. It is about what you believe in, in what you perceive to be valuable.
The fact that people liked and believed the first video of DollarShaveClub.com makes all the difference. Significance is about believing the story of the company that is selling the product to you. It has nothing to do with reason. It is all about emotions. And Michael Dubin knows like no other how to tackle rational objectives brilliantly:
Q4 – Will DollarShaveClub members be loyal?
With over 3 million subscribers it is hard to deny the success of DSC. But we also know that churn was an issue. Not sure if they tackled it, but keeping the reaction of Gillette in mind and the notion that you might only need 2-4 cartridges per year, it requires DSC to keep producing remarkable content to prevent customers from falling into disbelieve and terminate their subscription.
By itself the proposition of DSC might be weak, but as long as they continue to create inspiring, shareable content, attacking industry leaders with great humor, I feel the company has the potential to become a full blown brand, regardless of the business model.
