Case Preparation For Discussion (Gillette)
1. Central problem/issue in case:
The main problem is that, since its acquisition, Duracell has become a drain on the financial performance of Gillette. The board needs to decide what should be done to turn Duracell around and restore Gillette to a dependable financial performer.
2. How is the battery industry (you can use five forces analysis to answer this question)? Has it been changing? If yes, how?
Overall, the industry is very attractive. New entrants realize the potential of snagging a piece of a highly profitable industry that produced $5.2 billion in revenue and $807 million operating margin.
Threat of new entrants is low, as the capital requirements and technology development needed to stay relevant in the market proves to be a daunting barrier to entry. Also, in order to realize a significant profit, economies of scale must be realized to produce a massive amount of batteries while keeping costs low. This would be harder for smaller entrants to achieve.
Threat of substitute products is low, as no replacement good has been introduced that may provide the consumer with the same benefits as using a battery. This makes the industry attractive. However, if a company produced a good that could replace the need for a battery, this would detrimentally alter the battery industry, making threat of substitute products a major factor of the industry.
The bargaining power of suppliers is low because there is little differentiation between the inputs of the batteries, which can be acquired from many different suppliers. This low supplier power makes the industry attractive.
The bargaining power of the buyer is fairly high, as there is high buyer concentration with low switching costs, which makes the industry less attractive.
The major, key factor is the rivalry among competitors. There are three main competitors that comprise 85.76% of the battery market, in which they are constantly upgrading their technology, promoting their products with strong advertising and marketing campaigns, and cutting prices of their goods.
Yes, the battery industry has changed over time to create more efficient, less costly batteries than it ever has before; however, it is becoming fairly stagnant. With the competitors simply making them slightly more efficient than the leading brand and coming up with the next best advertising campaign, there is little more for each of the battery manufacturers to do with their product. The battery industry could be considered a “cash cow” – great profitability, large market share, but little growth. In order to stay on top, Duracell has to spend significant amounts of money on R&D to continue to keep up to speed on the relevant technology.
3. What were the impacts of Duracell’s introduction of Ultra on the nature of competition in the battery industry? When Duracell introduced Ultra in May 1998, it began a long cycle of the battery industry’s main competitors introducing new, higher-powered, longer lasting batteries. Originally, these batteries were sold at a premium. Three months after the introduction of Ultra, Duracell was involved in several court battles, which were soon followed by Gillette’s announcement that it was restructuring the company and cutting jobs. After all the commotion around the battery industry, Consumer Reports told consumers that all batteries were standard, worked the same, and to buy the cheapest one. When Energizer and Rayovac introduced their new, updated batteries, they were sold at a price cut or at the same price as the standard battery. For all three main competitors, none of their baseline batteries were replaced, but rather simply updated and sold alongside the other on the shelf. Each introduction was accompanied by a pricey advertising campaign that was designed to win new customers and hopefully gain market share.
4. Why was Gillette unable to achieve the same success in batteries that it had been able to achieve in shaving products?
Gillette is very good at using their knowledge and expertise in each of their segments to create related, diversified products to fit the needs of their consumers. They use what they already know, the resources and capabilities that they already have, to grow horizontally within each segment by creating a wider range of products and services for the consumer. For their personal grooming segment, they have expanded from simply razors to shaving cream and deodorants. They have been unable to find a way to do the same within their portable power segment, in which Duracell is the only company. In order to gain financially, they need to discover a way to expand the capabilities of Duracell.
5. If you were James Kilt, what strategic actions would you take?
I would look for ways to expand the portable power segment, which includes Duracell. Perhaps using Duracell in all of Gillette’s electronic products, such as the electric-powered toothbrushes, electronic razors, or coffee makers. Also, a possibility is to perhaps create an exporting agreement to electronic goods producers to use Duracell batteries in their products as they are sold. Another possibility is to spend money developing a battery that could be used in auto production, then creating a joint venture with an auto manufacturer. Gillette already has good global presence, so expanding more globally could help.
6. What do you learn from this case?
I learned that just because a company is profitable at a specific point in time, like Duracell, does not mean it will be profitable forever, even if it is teamed up with a strong, financially enduring company, like Gillette. In order to continue outstanding financial performance, you must evaluate where the industry is going in the future and look for ways to diversify and expand before it hits a downturn.
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