GILLETTE’S ENERGY DRAIN (A):

THE ACQUISITION OF DURACELL

Presented by NAVDEEP BAJAJ (621104749)

Indian School of Business
 Question 1
If you were James Kilt, what strategic action would you take to turn Duracell
around?
Case Facts:
• The Gillette company has strong relationship with its vendors especially
Drug Stores and Retailers [pg 4]
• About 75% of all alkaline battery sales are impulse buys [pg 5]
• Consumer report focused on buying batteries by price. Store brands
look like Branded batteries. [pg 10]. It is a Search good.
• While market share of Duracell Ultra has gone up, the market share for
other Duracell products has gone down by 5% [Exhibit 7]
• Drug Stores and Super Markets contributes as much to sales as
Discounters [Exhibit 5]
Inference & Strategic Steps:
Duracell Should:
• Concentrate on the affordable Price segment, where it is losing market
share, with its Copper Top line brand Duracell Plus.
• Spend on brand building for Duracell Plus to knock out the competition
from Store brands. Duracell can offer a better product at same price.
• Gain from Gillette's relationship with its drug stores and retailers,
targeting them instead of Discounters as combined they have the same
market share as Discounters. Offering 8+2 schemes or lower prices at
discounters can have a hit on the brand image.
• Advertise itself with Gillette’s electronic products as a compatible
offering.
Question 2
What are the impacts of Duracell's introduction of Ultra on the nature of
competition in the battery industry?
Duracell Ultra rolled out in 1998 in AA and AAA sizes. It was a higher
performing, premium alkaline battery. It was allowed to co-exist with the
existing Copper Top line of batteries. It had a significant launch budget of
$60M and Duracell employed a new ad agency for its launch.
Rival Offerings:
• Sony (Stamina Line), Panasonic (Panasonic Plus) were launched gaining
on popularity of their existing electronics business.
• Rayonac’s replaced existing line with Rayonac “Maximum”. Priced 20%
below than competition and with $75M advertising in budget targeted
Duracell with “Duracell Challenge”
• Energiser replaced existing line at same price and targeted Duracell with
claims of 9% longer battery life.
Impact on Industry:
• Innovation increased, with better offerings coming out every few months
• Advertising spending increased with every new brand. Ultra [$60M],
Rayonac [$75M], Energiser [$150M], New Ultra [$140M].
• Increased Performance to Price ratio. Better performances were offered
at same prices.
• New products were also offered in other sizes than AA & AAAs
Due to increase competition and product innovation, Ultra was replaced with
“new” Ultra within a year. New Ultra had 20% better performance, 2.5 times
the advertising budget and was available in more sizes as compared to Ultra
 Question 3
What could Gillette have done differently in 1996 that would have had a
more positive impact on company and industry profit?
Case Facts:
• From 1996 till 2000, Duracell operations margin decreased by 2.5%,
while operating margin for Rayovac increase by 196% [Exhibit 6]
• Rayovac is the only company among the three major player to increase
both operating margin and revenues from 1996 to 2000.
• Rayovac’s main brand Rayovac Maximum was comparable to products
from Duracell & Energizer but cost was approx. 15% less. [pg 7]
Inference:
• While launching Duracell Ultra, Duracell did not replace its existing
‘Copper Top’ Line but both the brands co-existed. Rayovac replaced it’s
exiting line with Rayovac Maximum. It provided Rayovac with the cost
advantage and it was able to price it product 20% below Duracell and
Energizer.
• Instead of brand fragmentation, if Duracell would have followed
consolidated brand strategy it would have reduced its operating cost.
• The Performance to price ratio decreased for Duracell’s premium brands.
Thus, following the Gillette’s strategy of pricing upgrades 20% higher than
existing products did not pay off for Ultra as the competition was able to
provide similar performance at a lower price.
• While only 20% of Duracell sales were outside US, 63% of Gillette’s sales
came from outside US. Duracell should have leveraged Gillette’s existing
sale infra to expand outside US sales.
Question 4
Why was Gillette unable to achieve the same success in batteries that it had
in shaving products?
Higher Competition for Duracell
• Battery market was fragmented with many small players and none of the
company have a market share more than 50%
• Gillette’s market share in the shaving product was 77.2% that allowed it
to have a room to shape customer preferences.
Low Brand Loyalty, No Product differentiation
• The lower priced Alkaline Batteries performed comparable to premium
offerings from Duracell.
• 75% of sales were impulse buys. Thus, instead of product differentiation or
brand it was convenience of availability that drove sales. Gillette sales on
the other hand were driven by Product differentiation.
• The above two factors lead to low willingness to pay for Duracell, which
were priced higher than competition. Gillette on the other hand enjoyed
higher WTP.
Poor Pricing Strategy
• Following the Gillette’s strategy of pricing upgrades 20% higher than
existing products did not pay off for Ultra as the competition was able to
provide similar performance at a lower price. Thus, performance to price
ratio for Duracell did not make sense to buy Duracell for customers .