2/08/2005

Not Quite Durable Goods

One of the last pieces of information from my Bachelors in Econ degree still floating around in my head is the concept of ‘durable goods.’ They are goods that are used but not used up, and generally can be expected to function for a minimum of three years. Your car is a durable good. The gasoline in its tank is not.

The purchase of the Gillette company by Proctor and Gamble got me started thinking about this, specifically an “analysis and commentary” in the 2/14/05 BusinessWeek. Frankly, I found both the “analysis” and “commentary” lacking. To paraphrase Letterman’s old reply to viewer mail that was the result of a collaborative effort… it took four of you to write this piece?

What I was interested in was the description of the efforts by both P&G and Gillette in recent months to create products whose purchase in turn creates a lasting demand for other products.

The razor companies have done this for years. You buy the Gillette or Schick body, then spend an obnoxious amount of money every few months for new blades. Of course, the companies would say that the ‘per shave’ cost is still very cheap. Also, theft is so prevalent that us honest folk are subsidizing razor blades for shoplifters.

For example, enjoy this tongue-in-cheek number off the police blotter of the
Capital-Gazette (Annapolis, MD):

Police beat: Jan. 24
Blade theft cut short

Two Prince George's County men who allegedly tried to take more than $1,000 in razor blades from a city grocery store couldn't make a clean getaway…

..According to police reports, an employee told police he saw the two men cleaning out the razor cartridges in each checkout lane. The employee stopped the two men and held them while waiting for police.

Police said the two men stuffed more than $1,222 worth of razors down their pants..."


Don’t feel too bad about the companies’ losses, they are taking steps to reduce shrink (beside putting blades under lock and key, adding RFID technology), and are still making a hefty profit anyway. But see the marriage of durable and consumable goods? The body of the razor essentially lasts forever, the razor heads do not.

Gillette struck a brilliant move by creating the M3Power razor. It contains s Duracell battery (another Gillette product) powering the Braun motor (also Gillette owned). When operating, the product is supposed to make even shy facial hairs go all erect so they can be lopped off as close as possible to your tender flesh. You still have to buy replacement razors (more expensive than earlier models, of course), plus you need to replace the battery every few months.

Proctor and Gamble has been busy too.

Royal Appliance arranged a license agreement to use P&G’s Swiffer brand in conjunction with its own Dirt Devil. The marriage resulted in a light, lower-power, rechargeable cordless vacuum with a Swiffer cloth on the end. Whatever the cloth misses, the pitch goes, the vacuum will suck up. P&G didn’t really need to lift a finger on this one.

The BusinessWeek piece also highlights the oscillating P&G’s Tide StainBrush (which incidentally borrowed technology from the Crest Spinbrush Pro, also in the P&G family). You pour Tide detergent in, and "The fabric-safe bristles rotate back and forth, working Tide Liquid into the fabric and loosening stains. It does the work so you don't have to!"

If I were writing the ad copy, I would continue “Because those who manually rub detergent into a stain before washing are Communist Luddites. It is so tiresome and labor-intensive. Those of you who don’t buy the Tide StainBrush probably just beat your clothes against rocks by the riverside instead of using a washing machine like the rest of the civilized world.”

These developments raise a couple questions for me:

Should the definition and accounting of 'durable goods' be bifurcated into ‘durable goods that need consumables to function’ and ‘durable goods that do not’? Cars need fuel, oil, fluids, tune-ups, replacement parts, etc. A chair, theoretically, does not need maintenance. Used in a regular fashion by people of about average weight, it can go for years without help. You may decide to dust it or wipe it down, which would incur a small cost from time to time. Is their some sort of ratio of the value of consumables needed to maintain the durable good over its life, which if met, should then classify that durable good as one that needs help?

It would seem to make sense that an increase in orders of ‘durable good that need consumables to function’ would be better for the economy than for ‘durable goods that do not’ over time, because the purchase of ‘durables needing consumables’ (for shorter) would imply steady purchase of consumable goods over the life of the durable.

That’s a question for the real economists. Probably someone has already thought of this.

The other question is about the benefit to companies of these durable and consumer brand marriages. There is nothing to stop you from buying some other battery than Duracell later to put in your M3Power, but I would guess it is “rising tide” thinking: anything that drives up the consumption of AAA batteries in general will drive up Duracell sales of AAA batteries to some lesser extent. But from the images online, I do not even see a Duracell brand on the body.

This is what the Tide StainBrush and the Crest SpinBrush do. The durable good was a brand extension of the consumable good, thus the Tide and Crest logos are clearly displayed. So you see an ad for the consumable every time you use the durable… does that increase sales of Tide detergent, the consumable, significantly?

I’ll ask it in a simplified equation:

% Tide market share before introduction of Tide StainBrush =A
Permanent increase in % market share following introduction of Tide StainBrush = B
Overall value of consumption of liquid detergent before introduction of Tide StainBrush = C
Overall value of increased consumption of detergent as a result of introduction of Tide StainBrush =D (people will use more detergent per load)

“B” is the grab for market share, while “D” is the “rising tide” factor(no pun actually intended, since when most people say ‘no pun intended’ they are lying). Do you get a bigger slice of the pie, or do you grow the pie and benefit as a result?

So by how much does the revenue generated by (A+B) x (C+D) exceed that generated by A x C?

This, of course, ignores the Tide StainBrush itself and the revenue from its sales.

P&G must be doing something right, the BusinessWeek piece says their “sales growth is running at 8% a year, excluding acquisitions”.

Which leads me to my third question, which is, what marriage of consumables and durables will we see next?

*) Auto manufacturers strike a deal with oil companies to co-brand a car... The Ford Exxon? The Honda BP Hybrid?

*) Charmin Toilet Seats, which are softer and more comfortable than the average seat.

Ok, so maybe those are a little ‘out there.’

Finally, I’ll end on the following tangentially related note: Whenever I see the results of surveys or focus groups that confirm common knowledge, I mockingly call it “research from the University of Duh.” This latest installment comes from the BusinessWeek article about P&G,

“When research showed that girls wanted to know more about Tampax, P&G shifted a chunk of advertising from TV to print and created a Web site called Beinggirl.com”

How many tens of thousands of market research dollars were spent on that nugget of wisdom? Putting myself in the shoes of the lead researcher, I’ll write his executive summary paragraph: ‘Our intensive data-mining efforts, combined with months of ethnology and cool-hunting, has led us to the conclusion that 96% of tampon users are in fact women. And younger women, who have never used a tampon, know less about tampons than older women who have. Finally, after age 50, interest in tampons begins to trail off dramatically.’

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