Procter and Gamble have been running its business in three product segments, health care, baby and family care and beauty products, for decades. If you are to write a case study of whether the company should have acquired Gillette or not, what will you write?
With 30 brands and numerous products under its hood, it earned more than 40% revenues between 2001 and 2005 and made the largest acquisition by taking over Gillette. (Borderless Selling)
Here are the possible reasons for acquiring Gillette
- Commendatory strengths in product innovation and sale
If you do a case study and Geographical Pricing on Procter and Gamble, you will know that the company has a huge worldwide presence. If the management decides to take Gillette products to developing markets like China, it will increase its sale. However, if they do after sharing their merged RD costs, the company will develop the product better and meet better customer needs. (Debt Snowball Method)
- A stronger lineup of brands
Gillette holds a 70 per cent global market share of razor blades. The strong competitive position and the successful persuading capability of the consumers make Gillette a high price pint personal care item. Moreover, the brand has highly loyal customers. Acquiring Gillette will help Procter and Gamble get a stronger team of brands in the consumer products sector with a potential chance of perpetuity. Competitor Indexing
- Generate additional opportunities for economies of scale
The vast market share of Gillette combined with the Procter and Gamble’s internationally spread out distribution system is a tremendous force in the market. Their combined effort can reduce the per-unit cost of production and increase the net present value of their estates. It will help them to achieve higher economies of sale.
- Enhance relationships and bargaining power with retail buyers
Gillette’s powerful competitive position in the consumer product industry will give the brand, and Procter and Gamble increased their bargaining power over the retailers. Acquiring Gillette will give Procter and Gamble a stronger position in the market. Moreover, the amalgamation of the portfolio will strengthen the interpersonal relationship between the companies.
Procter and Gamble acquired Gillette in 2005. It could have been for possible reasons like commendatory strengths in product innovation and sale, more robust lineup of brands, generate additional opportunities for economies of scale and enhance relationships and bargaining power with retail buyers.