Gillette Cassette Case

Gillette Cassette Case

If Gillette is to move forward with its blank cassette project, Ralph Bingham should offer standard quality cassettes at slightly below price levels of the competitor’s standard price. Selling standard quality blank cassettes at $1.65 would give Gillette an advantage because 50% of the market is buying budget quality cassettes due to the cheap price tag. While the $1.65 price tag is more expensive than budget quality tapes, it is less than any of the competition’s prices. Budget quality consumers may be willing to increase their spending for a standard quality cassette if the price was brought down a little bit. This would give Gillette a larger market share than competitors by obtaining budget consumers and standard consumers. Also, with the expected demand for cassettes growing 30% each year throughout the 1970s, approximately 1/3 of that growth will go towards standard quality cassettes. Budget quality will grow the most (which Gillette may be able to capture as well with the lower price tag), and professional quality will capture less than 1/3 of the growth because of the high prices and more specific consumers.

Ralph Bingham should trust his advertising agency and expect $2 million for advertising the new product for the first year, and $1.2 million in ensuing years. The agency did say those numbers were on a preliminary basis, however, with little advertising and no strong market leader those numbers should be able to have the impact Bingham wants. As V.P. of new business development, he can put a hard cap on this part of the budget so that advertising expenses don’t increase.

Demand for blank tapes in 1970 was $150 million. With budget quality tapes capturing half of that number, it is safe to say that demand for standard quality tapes was approximately $44 million and professional quality at $21 million. The consultant team projects an average 30% increase each year throughout the 1970s. However, the increase from 1969 to 1970 was 60%. Therefore, it is safe say that the first year Gillette enters the market there will be more than a 30% growth. At 45% growth, demand for standard quality cassettes will be at $638 million. Bingham’s operation manager claimed they could make 12 million cassettes in one year. Assuming all cassettes are sold, Gillette would claim 19.8 million of the market, or 3% market share. By year 5, assuming 30% increase each year, the market would