Gillette’s Energy Drain (A): The Acquisition of Duracell

· James Kilt, CEO in 2001 – had meeting with BOD and wondered what actions to propose to
satisfy boards and investors (board incl. Warren Buffet who hired Kilt to take charge of a company
that had gone nowhere for 4 years)
· Turnaround plan for Duracell division
· Stock price at $34 had fallen 45% since in 1999
· Strategy: had to lay out a plan for Duracell – recently acquired from Alfred

The Gillette Company

· 9.2 billion dollars in revenues in 2000
· One of the most recognizable name brands in US, Europe and Far East
· “Safety razor” à no other article for individual use so universally known or widely distributed
· Company introduced many new types of razors and innovation throughout the year
· Diversified business to include more than just razors; in 2001 had the following sectors:
o Personal-grooming products (razors, shaving cream, lotions and deodorants)
o Small appliances (included Braun)

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o Oral care products (acquisition of Oral-B)

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o Portable power – Gillette acquired Duracell, the leading producer of alkaline batteries;

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highest OI from this segment

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· Also had a stationary segment with PaperMate but sold that in 2000 for a loss

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The Acquisition of Duracell rs e
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· Purchased Duracell for 7.3 billion in stock
· Overwhelmingly approved by Gillette stakeholders + highly regarded in investment ind.
· Before acquisition, company had experienced consistent positive growth in revenues and better
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operating margins + leading company in alkaline batteries

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· People thought this was the perfect merger because Gillette was known for its relationships with
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vendors around the world (i.e. stores and retailers) and this would be the perfect fit in terms of
channels of distribution
· Offered Charles R. Perrin, CEO of Duracell a job + high compensation for eliminated
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employees à restructuring of Duracell estimated to result in cost savings of 80-120M

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Batteries and the Battery Industry

· Use can be tracked to early late 18th century
· Can be divided into 2 separate categories: primary and secondary
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o Refer to battery’s ability to be recharged

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o Primary batteries: discarded and used à held charge for longer times + less exp
o Secondary: could be recharged multiple times over life à higher energy density and
more usable in extreme temperatures
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· Battery companies usually focsed on disposable market because they believed customers
wanted a convenient, no hassle, portable power source
· In US alkaline batteries became popular but the transition to other countries was slower (ex.
India)

IN-CLASS DECISION

Competitors: Royovac and Energizer

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 Other competitors: Panasonic, Sony, Kodak + private brands owned by retailers (ex. IKEA)
Battery industry is a relatively mature industry (not declining)
· Some of us purchase batteries frequently
· Others haven’t purchased them in a while
More than half of the batteries were purchased in discount stores. Other distribution channels include
superstores and drugstores.
· You only purchase batteries when you need it; you don’t purchase them beforehand

No large difference in the batteries – solely depends on the price of the batteries. Price is based on quality.

1. If you were James Kilt, what strategic actions would you take to turn Duracell around?

Harvesting strategy: sell stock to not incur any more costs

· Mature industry – different than declining industry
· You still have very stable demand
· They just hired James too – shows commitment to keeping the business

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Decrease advertising costs: spend more on lowering price à low cost strategy

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· Consumers in this industry are very price-sensitive

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· Length of the batteries – do not care about that very much; just a vague impression that some

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batteries are better quality than others
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· Michael Porter: If we try to pursue low cost and differentiation strategy at the same time, we
might be stuck in the middle à transfer from low cost to diff strategy is hard too because you use
different resources and capabilities à resources and capabilities are valuable to certain areas and not
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always transferrable to diff strategies

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· Its easier to transfer from differentiation to low cost à difficult to transfer from low cost to
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differentiation
· Relatively feasible for Duracell to lower costs instead of diff strategy
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Divestment: sell battery business

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· Case written early on

· They just hired a new CEO
· Probably not feasible
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Intensify competition: by spending more on marketing

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· Companies only have limited resources

· Trade-off for marketing and R&D
· Marketing is more feasible in this situation than R&D
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Differentiation: Spend more money on R&D to have a better product

· Looks are the same in this industry
· Its very hard to tell the differences between diff batteries
· It also would be imitable by other companies probably
· Gillette is actually a very differentiated company in the shaving industry

Tacit strategy: implicit agreement with competitors (all competitors)

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 · Usually illegal
· Academic conference
· Price leaders can just change their price and others will follow
· Press release

2. What were the impacts of Duracell’s introduction of Ultra on the nature of completion in the
battery industry?

Competition will become fiercer.

3. What could Gillette have done differently in 1996 that would have had a more positive impact
on company and industry profitability?
Gillette may try to have less aggressive marketing + use tacit collusion

4. Why was Gillette unable to achieve the same success in batteries that it had been able to achieve
in shaving products?
In shaving products, Gillette has very good differentiation abilities but this is not the same case in
batteries as they are usually based on low cost.

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