Wisely is a startup that offers a subscription service for razor blades and other grooming products. With an online direct to consumer (D2C) model, the company eliminates distribution margins and offers a price that is one third of its competitors. The founder says Wisely will grow to become the next generation’s P&G by expanding product lines to other consumer goods. Altos Ventures was a series A investor in 2018.
Korea's Take on Dollar Shave Club Eyes Future as Asia's P&G
“Why is this so expensive?”
It was in 2012 when Dongwook Kim, the CEO of Wisely Co., Ltd, had just begun living alone as a student attending Korea University. He went to a nearby supermarket to buy essential items, only to put back a razor from his basket after seeing the price. Four Gillette razors were 27,000 won, more expensive than water, toothpaste, laundry detergent, and fabric softener combined.
“I never knew how expensive razors were because my mom bought them when I lived at home. After I saw how much it was, I resorted to using outdated razors or disposable ones. At times, the shaven areas would sting and I’d cut my chin but I just couldn’t get myself to buy an expensive new razor. That was when I first realized that there is something wrong with this market,” says Kim.
And that is how the Wisely story began. A startup which has disrupted the shaving products market by providing a subscription service for good quality razors offered at a price one third of existing products.
[Problem to Solve] Manufacturing Cost to Sales Ratio 5% ... the Monopoly BubbleIt was when Kim began his career that he was able to pinpoint the exact problem of the razor market. He landed his first job at P&G, a consumer goods company which owns the world’s largest razor brand Gillette (P&G acquired Gillette in 2005 for $57 billion). His second job was at a global management consulting firm Bain & Company, where he was in charge of consulting mostly consumer goods and distributors. His time at the two companies provided an opportunity for Kim to closely look into the distribution structure of razor and razor blade market.
First, Kim learned that monopoly was the fundamental cause for expensive blade price. The razor/razor blade market had an oligopoly market structure in which Gillette accounted for over 70 percent with Dorco and Schick sharing the rest. Patents and capital power were tough entry barriers. Gillette had a dominating relationship with major distributors through its capital and brand power, which is why Gillette products are the most common and accessible products at supermarkets or convenience stores. Also, each razor blade product comes with dozens of patents attached to it, meaning that new players entering the market may face risk of patent lawsuit. This monopolistic structure served as rich soil for the big three companies to bank in a high operating profit of 30 percent.
The second problem was the distribution structure. Razors are generally sold in large supermarkets, convenience stores, and H&B stores which have the highest distribution margins. Some have distribution margins close to 50 percent, and the high distribution fees have been passed on to consumers in the form of consumer price.
The third problem was endorsing a growth strategy based on price increase. Major companies including Gillette have continued to launch new products at a higher price to fuel sales in the razor market which already has a fixed size. The strategy boosts revenue by opting to increase price (P) over quantity (Q). The release of expensive new products have pushed older products off the shelf, and it leaves no choice to the consumers but to purchase new, expensive products.
“I examined the distribution structure and calculated the manufacturing cost to not even reach five percent. It got me thinking that if I were able to disrupt the dysfunctional market structure, then I’d be able to provide a good quality razor blade at a reasonable price. That’s when I began to consider starting my own company,” Kim says.
[Value Proposition] Lower price, good shaving habits, credibility
In 2017 while working at Bain & Company, Kim realized he could no longer postpone his plans to launch a startup. The razor subscription service which had only been available in the US had landed in Korea. When Kim saw a Facebook ad for this service, he thought two things: “First, someone will do this even if it isn’t me, and second, this regular delivery service isn’t going to satisfy anyone.”
The service that opened in Korea was modeled after a company in the US named Dollar Shave Club. In 2011, Dollar Shave Club launched in the US with a mission 1) to offer a reasonable price and 2) to make it easier to purchase razors. It provided regular delivery service for existing razor brand products such as Dorco. The company was very well-received in the US market and eventually acquired by a consumer goods company Unilever for $1 billion in 2016.
“The company that launched in Korea provided regular delivery service for Schick products. It was cheaper than large supermarkets, but more expensive than Coupang, a leading e-commerce platform in Korea. It made the purchasing process more convenient, but I didn’t think that held much value in Korea. In the US, you have to drive to Walmart to buy a single razor blade, and the blades are secured with an anti-theft lock so you have to call a shop assistant to make a purchase. This inconvenience was resolved by Dollar Shave Club, but that’s not the case in Korea. Here in Korea, you walk for five minutes and you’ll find many convenience stores and we even have the same-day delivery service,” Kim says.
Kim identified two key pain points for local razor consumers. First, good quality razors are expensive and second, users often forget to replace razor blades. As a result, many end up using outdated and low quality razor blades for a long period of time which causes skin troubles and frequent cuts to the chin. Kim concluded that these pain points could be addressed if a significantly lower priced razor, without compromising its quality, is offered through subscription service.
Dedicated to securing high quality products, Kim decided to entrust manufacturing to a German manufacturer equipped with technology equivalent to Gillette instead of reselling existing brand products. After two years of research, exhaustive legwork, and persuading, Wisely partnered with a manufacturer in Germany that had over 100 years of history in making razor blades. Due to this, Kim was able to sell premium quality razors without worrying about any patent lawsuits.
Also, Kim decided to adopt a Direct-to-Consumer (D2C) model and sell the products on the company website. By doing so, he would be able to completely eliminate distribution margins and lower the product price drastically. Many large e-commerce companies like Auction and Coupang sought after the company, but Kim remained firm on maintaining a zero distribution margin since e-commerce platforms also gain margin even though it’s smaller than large offline retailers.
Following the decision to get rid of distribution margins, Kim focused heavily on product design and packaging presentation because he wanted to give customers the credibility and trust that the products are high quality.
“The reason why inexpensive private label (PL) company products don’t sell well is because they don’t pay attention to packaging and design which gives the impression that it’s cheap,” Kim says.
“Korean consumers tend to associate a product’s poor design and presentation as indicators of poor quality. We don’t advertise our affordable price. Instead, we communicate that we are an innovative and honest startup intending to change this unreasonable market structure. We pay a lot of attention to the branding and design,” says Kim.
Kim chose a regular delivery subscription service as a sales method. Customers would submit their skin type and shaving habits on the website, and receive a proposal on recommended products and replacement period. The strategy was to regularly replace razor blades to prevent skin troubles and to propose a ‘healthy shaving habit.’
In brief, Wisely’s value proposition is to 1) maintain premium quality and brand credibility, 2) dramatically lower costs, 3) promote a healthy shaving habit through a new concept of regular delivery service. In order to execute this, Wisely opted to forego all distribution channels and only stick to the D2C model.
[Team Building] Beta Service Begins in the Apartment LivingroomAlthough Kim planned to launch a startup, it wasn’t easy to leave behind Bain & Company which is one of the world’s top three management consulting firms. He also believed that he had to learn as much as he could prior to launching his own business. Kim began to prepare a beta service while still working as a consultant. He would receive products from the German factory and sell them after packaging. Initially, he outsourced the packaging design only to be disappointed heavily by the result. Through this he realized that excelling in two things at the same time is impossible and decided to quit his job.
After leaving his job, Kim made his apartment living room the distribution center and launched a beta service named ‘Square Shave’. His daily routine included packaging products until 8:30pm which is when the delivery man came, and then eating his first meal late at night after shipping off the products. His younger brother Younho Kim, current Team Lead at Wisely, had just joined Google Korea at the time and would come to help Kim after work. Just two months after launching the beta service, they were able to secure 4,000 customers.
The company’s official establishment was in September 2017 with three co-founders: Kim as the CEO, his former P&G colleague Youngpyo Jeon as the Director, and his younger brother Younho as the Team Lead.
Jeon, current CFO/COO at Wisely, had joined P&G the same year as Kim. He was also the co-founder of Bagel Labs, a provider of Smart Tape Measure. In 2017, Jeon left Bagel Labs and was preparing to set up a new business when Kim persuaded him to join Wisely. Now Jeon is in charge of product planning, logistics, production, and finance at Wisely thanks to his previous experiences of launching a manufacturing startup and handling sales planning and finance at P&G.
Younho, Kim’s younger brother, had led a double life by handling advertisement sales at Google during the day and helping his brother at night. One day, Kim told him to choose between the two to get something done successfully and properly. Younho chose Wisely.
“I brought my brother into this team because I was confident of his performance and level of execution,” Kim says.
“In the beginning, Younho was in charge of finding packaging providers. He went and met with 50 businesses at Bangsan Market in Jongno and became really close with a few of them. Soon, he completely learned their ecosystem and ultimately, we were able to purchase directly from the manufacturer instead of having to go through a middleman,” says Kim. It was this type of fierce execution style that Younho brought to the company and now he is in charge of developing a new brand for Wisely. He is also responsible for creating a long-term plan for the company and handling marketing and customer relationships.
One thing that sets Wisely apart from other startups is that it created a People Team from the start. Wisely had five executive and employees including the founders when they hired Yeawon Choi, a former BCG Consultant, as the Head of People Team. She was the sixth member of the company, and the third employee excluding the co-founders. This was an extremely unconventional move considering that startups generally start discussing company culture when there are over 20 employees, and create a People Team when there are about 100 employees.
“We recruited the Head of People Team when we were just a company of five, including the co-founders. Even our investor Altos Ventures was puzzled by this decision, but we believed that we would need to establish a good and sound culture from the start to be a sustainable company,” Kim says.
Choi joined the team about a year after the co-founders had worked together. It was a small organization, but their work culture had already been established to some degree. Choi saw that even if she were to replicate a superb Silicon Valley company culture, it would not be easy to implement it into Wisely. Instead, Choi decided to nurture the strengths from the existing Wisely company culture, and the co-founders agreed. Choi proceeded by interviewing the co-founders and came up with ‘7 Ways of Working for Wisely Team’.
7 Ways to Work at Wisely1. Obsess over high quality: Set the highest standards and don’t compromise on the level of completion
2. Prioritize user experience: Be a step ahead of customers and offer the best user experience
3. Prioritize and concentrate: Focus on the 20% core task that leads to the 80% result
4. Long-term perspective: Look beyond short-term performance and results.
Make decisions based on long-term growth.
5. Voluntary leadership: Leadership flows from bottom to top. Every team member should think and perform like a leader and propose high-level responses.
6. Critical thinking and rational discussions: Make reasonable decisions through logical, honest, and mature discussions
7. The will to do the right thing: Act ethically and legally for customers, society, Wisely’s team, and competitors
“The first was to obsess over high quality. It’s basically setting the highest standards and refusing to compromise completion. Often startup communities speak of ‘act fast, fail fast’, but Wisely is not a free social media platform like Facebook. It’s a company that makes household goods that consumers pay for, meaning that a single mistake could require years of recovery. We set up a culture that focuses on minimizing mistakes while aiming for perfection from the very beginning.”
[Revenue Model] Revenue per Customer is 2.2x higher than Competitors ... 90% repurchsing rateA customer who visits Wisely website for the first time will purchase a set that includes a razor and a razor blade. Shaving gel and aftershave lotions are optional. Afterwards, razor blades (four blades for 8,900 won) are delivered to the customer based on their delivery cycle. It’s like a recurring revenue model where a customer who purchases espresso machine will continue to buy espresso capsules.
Just two years after its launch, Wisely recorded six percent usage rate (multiple responses included), a reflection of its reasonable price, premium quality, and good customer experience. In Korea, Wisely came in fourth following Gillette, Dorco, and Schick. The usage rate recorded 10.3 percent among customers in their 20s and the turnover rate is growing at 250% annually. Kim predicts that they will “beat Schick within this year and take third place.”
Profit margin is important. Wisely sells razor blades at one third the price of existing companies, and also engage in intensive SNS marketing while it may not be as much as Gillette. Their shipping costs are also quite high so what if their deficit increases along with their increased revenue? Kim says that “We’re in the red for now, but we will soon switch over to surplus and see increase in profit margin.”
The repurchasing rate is a key contributor to Wisely’s confidence. Over 90 percent of Wisely customers will repurchase the company’s products. The customer acquisition cost is quite substantial in the early process of securing customers, but the cost is decreasing day by day. In result, it’s a structure where the profit ratio will increase as marketing costs are reduced compared to sales.
Also, Wisely customers’ spending per capita is twice more than its competitors. On average, Korean men spend about 25,000 won annually for shaving products, but Wisely customers spend about 54,000 won. Wisely’s low price and regular delivery service result in higher razor blade consumption than their competitors’ customers. Also, the purchasing rate for shaving related products such as shaving gel and aftershave is significantly higher than the market average.
“The average rate of purchasing shaving gel with razor blades is 19 percent, but it is about 65 percent for Wisely customers. When a customer orders various products in a single order, it raises our profit rate since the shipping cost is lower compared to sales,” says Kim.
[Customer Engagement] Customers request for afterparty post-FGI:Wisely’s repurchasing rate and cross-selling ratio are high due to customers’ loyalty. This high loyalty stems from Wisely’s active customer engagement.
In February 2018, Kim could not properly spend time with his family during Lunar New Year holiday because of the digital content he had uploaded on Facebook. Kim’s post was about the unfair structure of the razor market and Wisely’s solution to the matter. The post received more comments than expected and Kim was tied to his phone all day replying to all of them.
“The comments were explosive. When I personally responded to every comment, people said that I was crazy and posted even more comments. We ended up getting 30,000 comments and 24,000 shares. This is still talked about as a successful case of content marketing. The next morning our sales numbers were weird, as in the figures were too high to make sense of it. Our marketing had hit jackpot. We received more orders than we could handle so we had to request our German manufacturer to make products in advance with a deferred payment,” says Kim.
This type of active customer engagement that Wisely demonstrated from the very beginning may explain the reason for high customer participation and why attendees ask if there is an afterparty whenever Wisely holds a Focus Group Interview (FGI) for product planning. Kim says, “Our customers like to talk with us and provide feedback.” He adds, “99 percent of the reviews posted on social media are written voluntarily by our customers.”
Wisely released its second generation razor ‘Wisely 2.0’ in April 2020, a product of customer engagement. After launching its first product in February 2018, the company closely examined customer reviews and began developing their second generation razor in June of that year. The direction of the product upgrade was solely based on users’ feedback. Wisely noted that there were consumers who suffered from redness swelling and cuts on the chin which made skin protection a main priority.
Also, the ‘case and dock’ feature which received the most attention was created by analyzing customers’ experiences and coming up with a solution. There were complaints that razors fell easily when placed on the sink, as well as requests for a portable case suited for traveling. This prompted Wisely to create a stand which would keep the razor standing vertical instead of lying flat on the sink. Wisely also asked its collaborator Aruliden, a design studio in New York, to combine a standing dock feature into a portable case. This led to the creation of a portable case where a razor can stand on flat surface.
Celebrating the release of its second generation razor, Wisely gave away 100,000 razors to existing customers. Kim says that it was a way to thank the customers who helped to build the brand together. Customers who received the new product posted pictures of the razor on Instagram with the hashtag Wisely – there were about 400 to 500 posts per day.
[Threat of new entry] “Not a replicable strategy unless you commit 100% to a D2C modelWisely’s equation for success is providing premium products, reducing price by using the D2C model, creating a purchasing habit by regular delivery, and establishing credibility through strategic branding and marketing. Would other competitors be able to clone this equation? What if Gillette implemented the D2C model? What if distributors improved the quality of their private label products?
“It won’t be easy for competitors to copy Wisely’s model,” says Kim. This is due to the longstanding relationship between the manufacturer and retailer.
For example, traditional consumer goods manufacturers such as P&G and LG Household & Health Care would find it difficult to implement the D2C model. This is because major retailers will not sit back and watch manufacturers sell products at a cheaper price on their websites instead of offline stores, Kim explains.
It is also not easy for major retailers to enhance their private label products because it will take over the manufacturers’ premium products that are already in stores. Not only will there be a reverse growth in revenue, but also a tainted relationship with manufacturers.
“Unless companies introduce a 100% D2C model which frees them from other distribution channels, they will be face limitations in acquiring user data or marketing strategies,” Kim said adding “that’s a hard strategy for existing companies to follow.”
[Funding] Preparing to raise Series B fundingWisely followed a Lean Startup method where you ‘think big, start small’. Kim, alone, created Wisely’s beta service, and there were only three co-founders during the first year of launch. The initial capital of 240 million won including the 150 million won that went into molding the company was invested by the co-founders.
Then Wisely received Series A funding from Altos Ventures seven months after establishing the company. Han Kim, the CEO of Altos Ventures, said they invested into Wisely because it is an ‘innovative organization’. He says “Wisely provides a daily essential product at a reasonable cost with good quality. It helps customers start their day in a good mood and that’s innovation.”
Wisely is currently preparing to raise Series B funding. It has gained much interest from existing investors, partners, and both domestic and overseas investors.
[Scalability] “Aiming to become Asia’s P&G”Wisely plans to expand its success in the razor market to other product lines, with the first being scalp care. According to Kim, “Scalp care market is distorted like the razor market.” It exploits the psyche of consumers who suffer from hair loss and the market is swamped with exaggerative advertisements and expensive pricing. Often, the products do not contain enough amount of the advertised ingredients to have an actual effect.
“As for Wisely, the D2C model can get rid of distribution margin and we can use that on products,” says Kim. This will allow the company to create products that contain plentiful of ingredients that have effect. Also, the company has earned a reputation of being honest and credible which means there is no need for excessive advertisement or marketing. Wisely is currently conducting clinical trials for scalp care products.
Wisely’s greatest asset is its lock-in effect, a virtuous cycle where marketing and shipping costs will decrease compared to sales when there is increased repurchasing and cross-selling as a result of customers who are satisfied with the quality and service of a D2C platform.
Kim says, “For example, test trials are important in cosmetics marketing. Wisely provides samples in its shipping boxes so we are able to introduce our new products without additional costs and also offer bundle discounts.”
South Korea accounts for the world’s largest grooming market, and it serves as a growth platform for Wisely. According to Euromonitor, 34 percent of South Korean men use skincare products or go to hair salons at least once a week. The figure goes up to 58 percent if it is narrowed down to men born after 2000s.
“The APAC region accounts for 65 percent of the world’s grooming market,” Kim says. He adds, “It is culturally homogenous with the Korean market, so we believe that we will be able tap into the Asian market while maintaining our brand influence.”
Wisely’s mid-term goal is to become a leading company in the Asian grooming market, and the long-term goal is to become the next generation’s P&G. According to Kim, “Household products market is far from innovation. It’s a market where consumers prefer 1+1 products over their favorite brands.” He emphasizes, “Wisely’s vision is to transform this unreasonable market structure so that we can help customers spend more wisely.” The company’s name ‘Wisely’ reflects Kim’s philosophy which calls for ‘wise spending’.
Wisely Razor Unboxing
By Gayung Chu and Hanjong Choi (firstname.lastname@example.org)