Gillette Case Analysis

Gillette’s Energy Drain: The Acquisition of Duracell

1. Central problem/issue in case:

The main issue in this case is what should be done with Gillette’s division of Duracell. Gillette itself is a very profitable company whose revenue and earnings had been steadily increasing prior to the acquisition of Duracell. According to the case Gillette’s earnings had been growing at 17% annually for the 6 years prior to the acquisition of Duracell. One of the main reasons for the poor performance of Duracell, was the increased competition within the industry. According to the case, the three main manufacturers within the alkaline battery industry were Duracell, Rayovac, and Energizer, with Rayovac being the newest entrant. The only manufacturer to experience growth in both revenue and operating margin, according to the case, was Rayovac. With consumers being advised to buy batteries based on price, it’s not a surprise that Rayovac was increasing its profits being that it often sold its product for 20% less than the leader.

How is the battery industry (you can use five forces analysis to answer this question)? Has it been changing? If yes, how?

The battery industry is dominated by three main manufacturers, however Sony and Panasonic have recently entered the market. For such a large industry, there aren’t many competitors. One of the main reasons for this, is the barrier to entry. In order to start up a battery manufacturing company, a tremendous amount of capital is required. Between the costs of the factories, the patents, and the research and development, getting into the battery industry would not be easy. The supplier power within the industry is fairly low despite only a limited number of suppliers. Being that batteries are standardized, the costs of switching are nonexistent. The threat of substitute products is fairly low being that there aren’t many devices that can supply power to devices. The development of solar technologies may at some time be able to replace the need for batteries, currently however, this isn’t the case. It seems that the buyers within the industry lack any brand loyalty. According to the case 75% of battery purchases were impulse purchases meaning that most people aren’t actively shopping for batteries and will generally just grab what’s in front of them. Also, Consumer Reports suggested that consumers should buy their batteries based on price. The rivalry within the industry is fairly high despite the few number of firms within the industry. This rivalry is due in part to suggestions that consumers buy based on price. Also, in order to stay relevant, each firm must continue to introduce newer technologies and spend millions on advertising. The industry has been changing in that Sony and Panasonic have now entered the industry. For a while,

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