The merger between Gillette and Procter and Gamble

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Nicky Colraine

Economics 193

4/19/05


"This merger is going to create the greatest consumer-products company in the world … It's a dream deal."  Warren Buffett

"This was two companies with great products, strong management and terrific business models coming together to create arguably the best consumer product company in the world" Michael Barbaro, Washington Post

Introduction:  

                The merger between Gillette and Procter and Gamble is indeed a strategic move on the part of both parties.  It is a corporate marriage creating a union between male and female product lines; a contract valued at more than $55 billion dollars.     Commanding virtually the entire market, Gillette has been the world leader in the production of razors and other shaving products.  In 2004, their global share of the razor market was 71.5%, nearly five times that of their nearest competitor.   However, Gillette’s depth runs much deeper than simply shaving accessories; oral care products, cosmetics, and domestic appliances are a significant party of their sales arsenal.  With the acquisition of Duracell Batteries in 1995, Gillette then became a major sales force in the battery market.  In fiscal year 2004, their net sales were $10.47 million, a 13% increase from the 2003 figure.  

                Meanwhile, Procter and Gamble is the biggest manufacturer of domestic products, with over 270 brands that are categorized in 6 different marketing sectors:  laundry and cleaning (detergents), paper goods (toilet paper), beauty care (cosmetics, shampoos), food and beverages (coffee and snacks), feminine care (personal hygiene products) and healthcare (toothpaste, medicine).   Like Gillette, P&G also exceeded their 2004 financial expectations exceeding their sales target by 19.6%.    Both companies share a culture of innovation and a history of cooperation and is a marriage that will most likely lead to prosperous financial returns in the years to come.  

Background:  

        The history of the Gillette Company is incredibly interesting, dating back to 1894 when it founder, King Camp Gillette, invented the safety razor.  Gillette developed the idea of a disposable razor while working as a salesman.  In his travels and interaction with males of all walks of life, Gillette stumbled upon the idea of the ‘disposable safety razor’ that men shaving on their own would find much more convenient  and user friendly.  Before the advent of the safety razor, men were shaving with a Star Razor -- a heavy wedge shaped blade that fit perpendicularly into its handle.   The blades needed frequent sharpening and after awhile, they became too worn to sharpen.  Gillette realized the tremendous potential for a blade that would simplify the shaving process.

         For six years, Gillette attempted to engineer a disposable razor.  Many metallurgists scoffed at Gillette’s idea and asserted that it would be nearly impossible to manufacture steel that was durable yet tenuous, but inexpensive enough for a commercially disposable razor blade.  In 1901, Gillette met MIT graduate, William Nickerson, who held a degree in mechanical engineering.  In 1901, equipped with Nickerson’s engineering acumen, Gillette developed a manufacturing process that made the production of inexpensive razor blades economically possible.   The razors hit the market in 1903 and by 1905; their first international operation was established in London.  

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        The company ingeniously marketed its self-shaving products by selling shaving kits to the US military during WWI.  When the war ended, Gillette strategically used advertisements to ensure the soldiers did not lose the habit.  The company’s advertisements slowly built the brand image and established a clear association between shaving and Gillette. 

During the 1930’s Gillette decided it was time to expand its product mix.  They introduced lather shaving cream and pioneered the electric razor.  Gillette began to diversify in 1948 with the purchase of Toni (beauty/personal care division).  In 1955, Gillette purchased the ballpoint pen company, PaperMate and later ...

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