Prior to the purchase, Duracell’s competition was mainly from Energizer, who was the worldwide leader in dry cell batteries. The original Energizer held a market share of 36. 6% in 1997, dropping to below 30% by the year 2000 with their operating revenues dropping as well. Competition was also offered from the Rayovac brand. Rayovac’s “Maximum” battery is comparable to both the Duracell and Energizer’s products, although it was sold at a discount of approximately 15%. This strategy has allowed the Rayovac Corporation to enjoy growth in both market share and overall sales over the period of 1995 through 2000. Although their sales totalled only a fraction of that reported by both Duracell and Energizer, their revenue growth was consistent while Energizer and Duracell experienced negative growth over the same time period. A report in the 1999 Consumer Reports may have been a contributing factor. That publication reported that batteries were so similar overall that the wise consumer should buy based on price alone.
Sales of Rayovac’s lower-cost batteries improved consistently after the findings were reported. Minimal competition was offered from several other brands (Sony, Panasonic, Kodak, RCA), although these products were primarily offered as a complement to electronics items provided by these manufacturers. In total, the market share of primary batteries outside of the top three was only 11. 7% in 1997, rising to 13. 3% in 2000. Although part of the competitive landscape, these competitors were considered inconsequential.
Perhaps in response to the increasing pressure from Rayovac, both Energizer and Duracell started a trend of offering “new and improved” products in 1998. Although their original tried-and-true batteries continued to be available, they began coming to market with increasingly more powerful and specialized products over the next few years. This trend, however, appeared almost counter-productive. As Duracell and Energizer continued competing head-to-head with each other (see Appendix I), the Rayovac product kept winning over the consumer with their original battery.
This is how Gillette and Duracell have earned the ability to advertise their products in prime locations (end of aisles) in retailer stores in the past. In addition, Gillette was successful in minimizing labour and operating costs by centralizing its packaging, sorting, and distribution of Duracell products through the Cleveland Distribution Centre. We believe this would be a huge cost-saving measure that could improve the long term efficiency of the Duracell distribution process.
From personal observations by this consulting company over recent visits to retailers, it is evident that Energizer has taken over the prime retail space (large displays in optimum locations) in at least two of PEI’s major retailers (i. e. Superstore and Wal-mart). Knowing how Wal-mart works with regard to its suppliers (i. e. buying in bulk, huge consumer market share, as well as the inventory technology interface with suppliers, etc. ), this shows a huge relationship between Energizer and Wal-mart in allowing such displays to be erected.
The key ingredient to success appears to be that battery companies must compete on price, rather than brand. This is exemplified by Duracell and Energizer’s plateau/loss of market share and Rayovac’s gain. Since there is little differentiation among batteries, other than a company’s different types (which is only competing against itself), they can easily be replaced by other brands that may appear more attractive to buyers. Consumers have a tendency to buy batteries based on price, rather than brand, since their perspective is “a battery is a battery” and they are basically all the same.
Since the threat of entry of new suppliers is high and the competitiveness is also high within the industry, it is evident that something needs to change in how the suppliers are marketing their products. Also the importance of the relationships with retailers and distributors is utmost in maintaining a strong visual presence of Duracell products within the buyer’s facilities. SWOT ANALYSIS We chose the SWOT Analysis as a valuable tool, as it helped us to identify Duracell’s internal strengths and weaknesses, as well as their external (industry) opportunities and threats.
From this analysis (see Appendix IV), we identified that these two huge brand names (Gillette and Duracell) came together to utilize their strong distribution channels and relationships with retailers, as their target consumers were very similar. We also are hoping to capitalize on the abilities of James Kilt to lead us into the next five years with a new vision and mandate of renewed growth. We also found that Duracell was not focusing on the secondary battery market, but thought it would be a potential opportunity for growth in the future, as more and more products are utilizing secondary battery power sources (i. . laptops, cell phones, etc. ). Thirdly, we found that Duracell was spending huge amounts of advertising funds on head-to-head competition with Energizer, rather than promoting its “tried and true” copper-top battery, similar to the Rayovac strategy. Lastly, we identified an opportunity to entice retailers by promoting our products with more creative incentives and advertisements. This will help to strengthen our relationships with retailers as well as provide eye-pleasing displays of our products in their facilities.
Consumers have shown, through Consumer Reports, that they want a regular everyday battery that is inexpensive and provides the service it is meant to provide. Through implementing a goals and objectives plan via the Board of Directors and CEO of Gillette, this would refocus Gillette’s (and Duracell’s) employees toward a common goal of providing good quality products at a fair price, as well as motivating employees to meet incentives for reaching target goals. There is an issue with Duracell changing the packaging and marketing strategies because it is expensive and not really necessary.
This has resulted in a constant reaction to new products on the market, but there was no real need to do this because Duracell’s copper-top product was already a great product. This has actually diluted their market share, rather than increased it, as several Duracell batteries were available (copper-top, Ultra). Their advertising was out of sync with their targeted customers (ex. space, hospital commercials) resulting in profit losses from the advertising and changing names/packaging problems, this area needs to be changed. Customers recognized the copper-top battery as being trustworthy, effective and long-lasting, so why change success?
Over time, both Duracell and Energizer became so focused on competing with each other and ultimately themselves, they have missed the fact that Rayovac and other small battery suppliers have continued to increase their market share and profit margins by sticking with one product at an economical price. (See exhibit 6 in the case for the basis of this analysis). Secondary batteries (rechargeable) are more popular in recent years with more innovative technology (i. e. laptops, digital cameras, rechargeable toothbrushes, ipods, shavers, cell phones, CD players, etc. ) and more customers wanting a environment friendly product.
Their financial accounting and regulatory policies are assumed to be standard within the two divisions of Gillette and Duracell, as they produce consolidated business statements. Brand recognition for both Gillette and Duracell is, without doubt, very important and strong for both groups of products. This leads to a competitive advantage, in itself. HRM CEO of Duracell continued as the head of Duracell upon its acquisition in 1996 to, presumably, maintain a level of consistency for the Duracell division.
In 2001, a new CEO was brought in to reposition Duracell to hopefully create a renewed vision for this division Technology Development Maximize the benefits of both Gillette and Duracell by keeping the “best of the best” researchers and developers, and eliminating the non-essential/non-productive positions. Duracell researchers have taken the approach that constant upgrading of battery technology formulas is what the consumers are looking for, based on the continuous new product offering of the last few years (1998 – 2001). 1) Procurement Alkaline batteries require four main components as supplies: (1) Zinc powder as an anode (positive electrode); (2) Manganese powder as the cathode (negative electrode); (3) Potassium Hydroxide as the electrolyte; and (4) the casing of the battery. As the majority of these components are natural resources, which are highly toxic and flammable, the number of suppliers that would provide them would be assumed to be limited. Also, they must be procured in small quantities and are subject to fluctuating prices.
Therefore, we are assuming the procurement process for any battery manufacturing company would be similar to any other as the market for these products would be very specific and limited. Inbound Operations Outbound Marketing Service Material Handling, Inventory storage, Distribution of products to the line. (need research) Generic manufacturing process used to produce all types of batteries. Different printing on packaging, but completed in centralized distribution centre. 2) Duracell created a streamlined and centralized packaging, sorting, and distribution centre to minimize costs and labour. (2) Advertising, Promotion, salesforce, quoting, channel selection, relations, and pricing. Member surveys, employee surveys, corporate teams working on organization goals, e-mail & internet, customer service. Notes: (1)Constant Upgrading of Battery Formulas: This may not have been the best way to proceed, as it led to constant competition between the two big battery competitors, as well as huge cash outlays for distinct marketing strategies as each product was launched.
While Duracell and Energizer were caught up in this “Coke and Pepsi marketing tug of war”, they neglected to notice the smaller competitor, Rayovac, with a singular product consistently gaining market share. (2)Centralization of Packaging, Sorting, and Distribution of Duracell products to final destinations: Cleveland Distribution Centre, including new building and expansions to existing buildings resulted in an agreement with PSI (Production Systems Inc. ), who provided conveyors and sorting equipment to handle product from 16 different packaging lines to accommodate Duracell’s total US shipments. Duracell was extremely impressed with the entire installation and start-up process and consolidation of their distribution line on June 16, 1997, which resulted in a capacity of 70 cases per minute, virtually without human interface. This decreased costs, including labour, and improved consistency and efficiency in packaging and distribution of the products. ” (www. productionsystemsinc. com/case. htm) APPENDIX III Porter’s Five Forces The Threat of New Entrants – MODERATE to HIGH There are already three very prominent players in the battery industry –Duracell, Energizer, and Rayovac.
These three alone dominate the battery industry and own a majority of the market share. This can be very discouraging for new entrants since they would be competing against existing competitors with strong brand identification. However, batteries are also an impulse purchase that the majority of consumers purchase based on price rather than name brand (a battery is a battery) which could encourage new entrants to enter the market and compete on price rather than brand. In regards to the battery industry, new entrants shouldn’t have much trouble securing distribution channels since there are so many to choose from.
Batteries can be found anywhere from groceries stores to large department stores. However, since batteries are a commodity, buyers /distributors have no problem finding alternate suppliers which can be discouraging to new entrants. There is also the issue with switching costs since buyers have no problem finding other suppliers, switching costs are low which can be risky for new entrants because they can be easily replaced by another brand. The Bargaining Power of Buyers – MODERATE to HIGH The power of buyers is both moderate and high.
It’s moderate since there is not just one store/location that a supplier could sell their batteries to. They have a number of different distributors they could go to who could sell their batteries (ex. Grocery stores, department stores, electronic stores, etc). On the other hand, it’s also high because buyers can easily replace their product with another battery supplier. The buyer has the power to play one company against the other since they are confident they can always find alternative suppliers. This is especially true with commodity products such as batteries.
This is associated with the lack of switching costs a buyer has to face which again means a buyer can easily switch suppliers without cost consequences. The Bargaining Power of Suppliers – LOW It is assumed that Duracell purchases very little outside products to make their batteries (research unavailable). We are basing this assumption on the fact that because of the ease of entrance to new companies into the industry, we feel the power of supplies is low, or else these weaker suppliers wouldn’t survive in the market.
The Threat of Substitute Products and Services – HIGH It is evident within the industry that Duracell, Energizer, and Rayovac batteries are easily interchangeable in the minds of the consumer. The threat of substituting one product for another is very high, based on where the product is located in a store (i. e. at the checkout) and its price (i. e. base priced vs premium priced). Some independent electronic manufacturers are producing their own batteries for their own electronic products (i. e. CD players, toothbrushes, other “batteries included” products, etc. , automatically eliminating the need for purchasing batteries separately to run the product at its initial purchase. The Intensity of Rivalry among Competitors in an Industry – VERY HIGH Rivalry is fierce in the battery industry especially since the industry has now entered the maturity stage. The few top battery companies are now fighting for market share since firms seeking to expand their sales have to earn those new sales away from their competitors. Duracell and Energizer are the forerunners and have the most recognized rivalry and are known for constantly trying to “up” one another.
