Industry: Portable power industry in the US
The acquisition of Duracell was seen as many as a smart move. Analyst, shareholders, executives, had high expectations with this merger. Unfortunately, this acquisition created several problems for Gillette since their main goal of profit maximization was not being accomplished.
Should Gillette divest Duracell?
Is Gillette using the appropriate strategies to deal with the big and small competitors? •
Stock prices are decreasing considerably
Dry cell batteries industry generated US$ 2.6 Billion in US domestic sales in 2000. •
75% of all alkaline battery sales were impulsive purchasing. •
AA size batteries accounted for almost 50% of all sales. •
The industry was highly competitive, and the three big players were constantly developing new products. •
There were three main distribution channels for batteries: discounters, 52.5% of sales; drug stores, 23.8% of sales; and supermarkets, and 23.7% of sales.
Alkaline batteries were the preferred by American consumers. •
Due to high percentage of impulsive purchasing, manufacturers have to make sure to provide the effective displays for the batteries. Great amount of sales is dependent on the retailers’ effective display. •
Retailers are creating their own private brands (manufactured by the same big players)
In the US, where time is money, people are always in the rush. This probably explains why the high percentage of battery sales is impulsive purchasing. In addition, the American culture is highly receptive to technological innovations, so more efficient batteries are going to be needed.
Even though the case did not mention anything about the economic situation in the US, it is important to considerate that recent economic conditions in the US are not as good as ten years ago. Thus, it would increase the demand for low price batteries, giving a competitive advantage to big players such as Rayovac and Energizer whose prices are lower than Duracell.
More efficient and durable batteries are needed to satisfy the requirements of new technology developments.
Other types of batteries such as the high drain lithium ones are becoming popular due to the increasing use of electronic devices.
Constant research and development is critical to succeed in this industry
Even though the analysis for this case is explicitly for the industry within the US, there is a huge potential market in developing countries for alkaline batteries since the use of these is still quite low.
There is a intense rivalry among the big players of this industry. There have been some legal processes involving cases such as false advertising claims and patent infringement.
The case did not mention any battery consumption patterns. However, batteries in general are consumed by a large number of people in the US, regardless of age, sex, religion, ethnicity, etc. For example, lower income people would prefer less expensive batteries, and young people would prefer nickel – containing and lithium – ion batteries which are preferred for laptops, digital cameras, and other electronic devices.
Threat of New Entrants: low – increasing because even though the market share outside the three big players in the industry was lower, most of them are major electronic manufacturers which are already well recognized by consumers, i.e. Kodak, Sony, and Panasonic. Probably, that is one of the reasons why their market share has increased as shown in exhibit 8.
Bargaining power of customers: this is high because even though the market is basically controlled by three main players, they are constantly developing new and more efficient products. In addition, Duracell is one of the most expensive brands, so...
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