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Duracell’s competitive advantage of having access to Gillette’s vast distribution channels and
its core competency of trusted products and even more effective marketing strategies has been critical
to your firm’s success over the years, and must be taken into consideration when deciding whether to
switch from your current product differentiation strategy to a cost-leadership strategy. This switch may
help improve the profitability of Duracell, and ultimately Gillette. I will first outline the benefits and
Firstly, you will experience greater profits as opposed to a product differentiation strategy due
to higher profit margins. Cost-leadership does not explicitly imply that Duracell charge the lowest
price; the firm simply strives to incur the least costs to achieve the highest profit margin while
avoiding a possible price war. The current market for batteries is extremely competitive, and
customers are becoming more price-sensitive, looking for the best bargain. In order to have an
opportunity to pass on savings to consumers, Duracell needs to look to reduce costs in primary
activities of the value chain. This is most likely to occur in inbound and outbound logistics and as well
as R&D, where Duracell invests significantly to try to ‘out-do’ Energizer. Duracell can capitalize on
its completive advantage of Gillette’s vast and established distribution network to minimize shipping
times, quick delivery if needed and to cut transportation costs by shipping in bulk. What is more,
switching to a cost-leadership strategy would significantly mean a decrease in R&D expenses. Barring
any groundbreaking technological advancements in the near future, research shows that there are no
significant differences in the quality of ‘high performance’ brands. As these finding are becoming
more available to the public, technology is not the most important aspect of the purchase, but rather
price and impulse. Duracell would not have to compete so fiercely with Energizer to produce the most
‘durable’ battery, but the firm does have to make sure it is up to par with the premium brand quality.
In short, with increased savings in the value chain, Duracell can achieve a higher margin and stand in a
Secondly, switching to a cost-leadership strategy would also allow Duracell to increase market
share into new/developing markets (like Asia). 80% of sales are from North America, and only 20%
are accounted for from the rest of the world. This 20% figure has not experience significant growth
because of the Duracell’s price. With the current product differentiation strategy, too much focus is
placed on having the most ‘durable’ battery, which is big factor on R&D costs, and the premium
charged for this marginal increase in quality is not of value to consumers in Asia. A cost-leadership
strategy will give flexibility to lower prices if need be to combat the price-sensitivity of consumers in
these new and developing areas. The Duracell brand is indeed ‘trusted everywhere’ thanks to effective
marketing campaigns, and lowering prices in abovementioned markets will undoubtedly increase sales.
This is something the firm would have been able to do had it continued its product differentiation
approach.
For one, the image of the brand will be changed in the eyes of the public. Consumers associate
Duracell to be a brand synonymous with the best quality, which is the main selling point in its
invaluable marketing campaigns. By switching to switch to a cost leadership strategy, the firm would
not be actively striving to produce the longest lasting battery, but rather just reliable batteries up to par
with competitors like Energizer. Duracell will now have to compete on a whole new basis, and this
decrease in product value in the public’s eye might create confusion of the brand image, which may
lead to lower sales. Additionally, if the quality is not up to par with other premium brands, the firm
might lose certain customer segments, like medical professionals and the army, whose sole reason for
Second, if the switch from your product differentiation strategy to the new cost-leadership
strategy is managed properly, Duracell might be ‘stuck in the middle’. This refers to a firm which is
identified with neither strategy. Research depicts that firms that said ‘stuck in the middle’ perform the
worst in a study of 1,800 strategic business units. The transition between strategies will take time to
get used to, and if Duracell does not have a unified plan to ease this shift in strategy, the firm might
still strive to be a quality leader but end up being inferior to the actual leader, while not increasing
their profit margins significantly. Needless to say, this might be a severe blow to its bottom line.
strategies, as it is clear that the gains from switching to a cost-leadership strategies outweighs the
drawbacks, and will make your firm more sustainable and profitable. You are also more likely to
experience the originally intended synergy when Gillette first acquired Duracell: leverage Duracell’s
sales by taking advantage of its brand recognition and Gillette’s distribution networks. The Value
Chain Analysis in Appendix B shows why profit margins increase with the new strategy graphically.
The then-added ability to lower prices from the higher profit margins is most crucial to the
development of the Duracell brand not only in North America, but new and emerging markets as well.
Exhibit 5 clearly shows that most purchases of batteries are at discount stores, and price is one of the
bigger criteria when buying batteries. Successful implementation of the new strategy in the price-
sensitive Asian market could provide a massive windfall for the firm. To show the potential
effectiveness of a cost-leadership strategy in today’s price-sensitive markets, Rayovac, the cost leader
in the batter industry, has increased its operating margin every year, and it now stands 67% higher than
its 1995 figures. While product-differentiators Duracell and Energizer vigorously tried to develop the
longest lasting battery (and had to charge a premium for the extra R&D costs), Rayovac provided
consumers with an appropriate quality at a 15-20% discount to Energizer and Duracell. Emulating
Rayovac’s strategy, but with Duracell’s quality and brand image, will lead to even better financial
results for the firm. However, a clear plan must be constructed and followed closely to ensure your
firm will not be ‘stuck in the middle’. In conclusion, I feel my recommendation will increase not only
Duracell’s bottom line for years and come, but consequently Gillette’s as well.
APPENDIX A – FROM DIFFERENTIATION STRATEGY TO COST LEADERSHIP
PROS CONS
Increased Profit Margins and Overall Profitability Brand Image Loss
- Customer mentality is one that is geared to buy - People assume Duracell to be a
batteries based on cost, rather than quality, though brand synonymous with quality,
the quality must be appropriate and if they were to switch to a
- A cost leadership would mean the firm look for cost leadership strategy, they
savings in primary activities of the value chain would inevitably decrease at
- In Duracell’s case, most likely to save in least some parts in quality
inbound/outbound logistics, as it can use the through savings at certain points
distribution network of Gillette in the value chain
- Switching to cost leadership would also mean less - This switch will confuse
money spent on R&D, because they would not be consumers and the is not good
as focused on having the most durable battery for the image of the firm
- have to take advantage of economies of scale and - Lose a certain customer base
logistical dominance of Gillette that needs the most reliable
project
Breaking into New Markets Possibility of being ‘stuck in the
- Duracell’s competitive advantage has always been middle’
of its ability to use the vast distribution networks - When firms are associated with
of Gillette neither a cost-leadership or a
- Duracell’s core competency has been its effective product differentiation strategy
marketing strategies to create consumer demands - Could occur if management is
based on said technology not synchronized with its new
- A cost leadership strategy allows the firm to brand image
breaking into new/developing markets (like Asia) - Firm might still try to be a
by offering a reasonable price to consumers, quality leader and come second
something they would have been able to do had it to the quality leader, and at the
continued its differentiation approach same time not actually increase
- Offering a lower cost does not mean your margins its margins
will decrease margins, as they are saving more on
inbound/outbound logistics
- The firm can leverage their sales by taking
advantage of their status as a leading, established
battery manufacturer to ensure success while
making full use of Gillette’s distribution network
in new areas
APPENDIX B – VALUE CHAIN EFFECTS