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!