The Dollar Shave Club: Redefining the Razor and Blade Business Model
The Dollar Shave Club is disrupting industry giants by leveraging a new approach to providing shaving products
The Dollar Shave Club is disrupting the traditional shaving industry by providing innovative solutions to the issues that have plagued the over $4B shaving industry for decades like a bad ingrown hair.
Started in 2012 by CEO Michael Dubin, the dollar shave club launched its attack on the traditional razor and blade model offered by industry powerhouses Gillette and Schick via a viral video campaign (below). The videos mocked the existing business model for its high costs (~$4/blade) and the inconvenient sales channel that often makes consumers feel like a criminal trying to get locked away merchandise. On the contrary the Dollar Shave Club offers a monthly subscription service that includes a handle and four blades for $.25, $1.50 (the most popular) or $2.25 per blade (with free shipping for the two higher end plans). The product is shipped monthly with no drug store hassle. Value is created for the customer through lower prices, convenient shipping to your home, and a smoother face (since you’re not trying to stretch those $4 blades past the point of comfort).
The Dollar Shave Club captures value by employing low cost economics (the company sources its blades from a South Korean manufacturer) and a monthly or bi-monthly subscription model that promotes customer stickiness. Dubin cites sales at $4M, $19M, and $65M respectively in 2012, 2013, and 2015, with 2015 sales projected to surpass $120M in 2015. Subscribers number over 2 million and the startup has raised $148 million in capital with a pre-money valuation of $500 million plus. Dubin also claims a $ market share of 13.3% and unit share of 16% (surpassing that of Schick).
I believe The Dollar Shave Club will continue to win as a low-end disruptor for several reasons. First, even though Gillette has now launched its own Gillette Shave Club, the subscription model encourages customer loyalty. In addition, their aggressive and humorous marketing appeals to ordinary guys who are likely to recommend the products to their friends. Finally Gillette’s me-too strategy will only serve to cannabilize their existing sales and eat away at their margins. However, the barriers to entry and not impenetrable in this space. DSC has already begun to diversify their product offering with higher margin add-ons to boost profits and customer stickiness. This can be seen with some of their new products which include shave butter, moisturizer, hair styling products and “butt wipes for men.” They have overcome some of the online barriers for these profits by offering a customized approach to finding the product that best fits your needs and a “Hairantee” for a free replacement of a different product.
While I think DSC is a clear winner in digital innovation, they will need to be wary of “poking the bear” by entering a price war with established industry giants. In addition, they should look to attract other desirable customer such as older men and perhaps women (how convenient to get my razors monthly with my partner’s?!??!). Only time will tell if DSC is able to retain its leadership position as online men’s shaving retailer, but in my opinion it is definitely a winner!
I completely agree that Dollar Shave Club has shaken up the staid and strangely uncompetitive Razor market in the US. DSC competes basically on price. When I first heard about DSC, I learnt that they source their razors from a Korean manufacturer called Dorco. Now DSC has served as a platform for introducing and popularizing Dorco razors to a generation raised on Gillete. To a consumer who is really price sensitive, it would make sense to purchase razors directly from Dorco. In fact Dorco is a retailer on Amazon and is now, the highest rated razor company around. For 20$ you can buy 12 months worth of 6 blade razors.
So, I fear that the DSC has a very real threat of being disintermediated if it continues to compete on price alone.
Interesting point Rishek! Unfortunately for DSC, the razor is a complete commodity, so could easily be displaced by Dorco as the low-cost generic equivalent. However, why do people still by Tide when there are so many generic cleansers on the market? Because of a brand connection? Because they grew up with it? It seems like DSC is trying to create an ego-expressive purchase with their marketing which will make men want to support the business because they like the story it tells about them, rather than seeking a lower cost alternative on Amazon. It’s a great model – I would love if they expanded with a women’s line, but I wonder how it would change the brand / marketing / appeal to men.
DSC is one of my favourite brands and I love how inventive Micheal Dublin has been at disrupting this industry. I would also mention, among the various reasons why they will maintain their position in the blade market their unique marketing skills: they have been able to come up with a language that resonates with their customers – from the initial viral video they have produced to the hilarious marketing campaign they have continued to roll out. Great post! Thank you!
The model DSC is pursuing to disrupt a staid market is indeed interesting, however I would personally rank them behind Harry’s for three reasons: design, razor quality, and funding. On the design side Harry’s is far more elegant and interesting, which I think makes customers proud of the product, enjoy using it, and feel as though they are getting something unique and special with their subscription, for a lower price than something one might find at The Art of Shaving. DSC on the other hand continues the industrial look of many other competitors, and therefore is not differentiated on design. In terms of razor quality, as another commenter mentioned, DSC is simply repackaging razors of another company that is separately available for sale. Harry’s, on the other hand, is now the only brand in the world that makes its own blades and sells directly to the customer, thereby completely owning the quality of their product as well as the customer experience. They also can boast an extra blade edge on their razors. Lastly, Harry’s is better funded, having raised just under $300M versus DSC’s $150M, with the latest round for both having closed this summer. My bet would be on Harry’s!
Great point, however, Harry’s is more expensive than DSC by a large margin so I think they’re definitely going after a less cost sensitive model; to me it felt like it was competing more head to head with The Art of Shaving – inclusive of an on-premise “barber shop.” I like what Harry’s is doing but I’m worried it’s not low-cost enough to be true low-end disruption 🙂