The U.S. Alkaline AA Battery Market: A Competitive Profile

This paper follows the footsteps of eleven studies that have tried to analyze the competitive profile of U.S. consumer markets: Men’s Shaving Gel, Beer, Shampoo, Shredded/Grated Cheese, Refrigerated Orange Juice, Men’s Razor-Blades, Women’s Razor-Blades, Toothpaste, Canned Soup, Coffee, and Potato Chips. Porter associates high market share with cost leadership strategy which is based on the idea of competing on a price that is lower than that of the competition. However, customer-perceived quality—not low cost—should be the underpinning of competitive strategy, because it is far more vital to long-term competitive position and profitability than any other factor. So, a superior alternative is to offer better quality vs. the competition. In most consumer markets a business seeking market share leadership should try to serve the middle class by competing in the mid-price segment; and offering quality better than that of the competition: at a price somewhat higher to signify an image of quality, and to ensure that the strategy is both profitable and sustainable in the long run. Duracell, were members of the mid-price segment. Moreover, the unit price of Energizer was higher than that for Duracell, as we have hypothesized. For 2007 the results did not support Hypothesis I, because Energizer found it to be a member of the premium segment, even though Duracell maintained its association with the mid-price segment. We found that relative price was a strategic variable, as hypothesized. We also discovered four strategic groups in the industry.

This endeavor relies on a broader, integrated framework of market segmentation which includes both the demand and supply sides of the competitive equation. This approach is based on the idea that starting with "product" characteristics is both an easier and more actionable way of segmenting markets than the traditional marketing approach that typically begins with the customer or "people" characteristics (Datta, 1996).
This research is based on the notion that the path to market share leadership does not lie in lower price founded in cost leadership strategy, as Porter (1980) suggests. Rather, it is based on the premise-according to the PIMS (Note 1) database research-that it is customer-perceived quality that is crucial to long-term competitive position and profitability. So, the answer to market share leadership for a business is to differentiate itself by offering quality better than that of the nearest competition (Datta, 2010a(Datta, , 2010b(Datta, , 2012(Datta, , 2017(Datta, , 2018a(Datta, , 2018b(Datta, , 2018c(Datta, , 2019a(Datta, , 2019b(Datta, , 2020a(Datta, , 2020b(Datta, , 2020c(Datta, , and 2020d).
To make this idea operational requires two steps. The first is to determine which price-quality segment to compete in? Most consumer markets can be divided in three basic price-quality segments: premium, mid-price, and economy. These can be extended to five by adding two more: ultra-premium and ultra-economy (Datta, 1996;also 2012, 2017, 2018a, 2018b, 2018c, 2019a, 2019b, 2020a, 2020b, 2020c, and 2020d). The answer lies in serving the middle class by competing in the mid-price segment. This is the socio-economic segment that represents about 40% of households in America (Datta, 2011).

The Strategic Importance of Price Positioning
In a competitive market one would normally expect more than one major brand competing in the mid-price segment. So, the second step for a business seeking market share leadership is to position itself at a price that is somewhat higher than that of the nearest competition. This is in accord with P&G's practice based on the idea that although higher quality does deserve a "price premium", it should not be excessive (Datta, 2010b). A higher price offers two advantages: (1) it promotes an image of quality, and (2) it ensures that the strategy is both profitable and sustainable in the long run (ibid).

Close Link between Quality and Price
As mentioned above, customer-perceived quality is the most important factor contributing to the long-term success of a business. However, quality cannot really be separated from price (Datta, 1996).

A Short History of the U.S. Alkaline AA Battery Industry
According to Schlesinger (2010, p. vii), batteries "not only power our current technologically advanced and portable age, but are also largely responsible for virtually all of the early basic scientific research that made today's gadgets and gizmos possible." Batteries provided the primary source of electricity before the development of electric generators and electrical grids around the end of the 19th century. Successive improvements in battery technology have led to major electrical advances, such as the rise of telegraphs and telephones, portable computers, mobile phones, electric cars, and many other electrical devices (Note 2).
In 1800 Volta invented the first working battery called voltaic pile: a thing of "stunning simplicity" (Schlesinger, Note 2).
The focus of this study is on regular (Note 3) AA alkaline batteries. The first alkaline battery was invented in 1959 by Lewis Frederick Urry who worked for Energizer Co. This battery had an estimated life span that was "forty times that of the zinc-carbon formulation" (Schlesinger, 2010, pp. 249-250;Note 4 In January 2018, Energizer announced it was buying the global battery and lighting division from Spectrum Brands, which includes the Ray-O-Vac and Varta brands. This acquisition was finalized in January 2019 after a lengthy regulatory approval process (Note 6).

Duracell Battery Co.
According to the company Duracell is the "world's leading manufacturer of high performance alkaline batteries (Note 7).
The company owes its origin to two pioneers, Samuel Ruben and Philip Mallory, who founded a partnership in the 1920s: a union that lasted until Mallory's death in 1975 (Note 7).
The company's first batteries were marketed under the Mallory brand name. It introduced the Duracell brand name in 1965 with some stories claiming that the name came from a blend of "durable cell" (Note 8).
In 1969, Duracell became the first battery on the moon as part of the Apollo 11 mission (Note 7).
Duracell batteries were the first to be advertised on TV with a catchy phrase "No other battery looks like it. No other battery lasts like it" (Note 7).
In 1973 the company created the "Drumming Bunny" TV commercial which over time became an icon (Note 7).
Through a number of corporate mergers and acquisitions, Duracell became a part of the Procter & Gamble Co (P&G). In 2014, P&G sold Duracell to Berkshire Hathaway (Note 9).

Private Brands
It is important to clarify what private brands are. These are brands made exclusively for individual retailers, e.g., a supermarket, or a drug store. Usually, such brands are targeted at the economy segment, and, as such, are generally sold at prices lower than those of major name brands. One reason retailers like private brands is because private brands tend to be more profitable than name brands (Datta, 2018b(Datta, , 2018c(Datta, , 2020b(Datta, , 2020c(Datta, , 2020d. In 2008 Private Brands had 10.7% share of the overall U.S. AA 4-pack Battery market (Table 1).

The U.S. Alkaline AA Battery Market 4-packs-Price-Quality Segmentation Profile
This study is based on U.S. retail sales for 2008 and 2007 (Note 10). The data includes total dollar and unit sales, no-promotion dollar and unit sales, and promotion dollar and unit sales (Note 11).
For 2008 the total U.S. retail sales of AA Batteries were $667 million (

Hierarchical Clustering as the Primary Instrument of Statistical Analysis
We have used cluster analysis as the primary statistical tool in this study. As suggested by Ketchen and Shook (1996), we have taken several steps to make this effort as objective as possible:  First, this study is not ad-hoc, but is grounded in a theoretical framework, as laid out below.
 Second, we are fortunate that we were able to get national sales data for our study for two years.
Thus, this data provided a robust vehicle for subjecting cluster consistency and reliability to an additional test.
 Third, we wanted to use two different techniques-KMeans and Hierarchical-to add another layer of cluster consistency and reliability. However, we found Hierarchical cluster analysis to be superior in meeting that test. So, we did not consider it necessary to use the KMeans technique.

Theoretical Foundation for Determining Number of Clusters-and Their Meaning
As already stated, a major purpose of this paper is to identify the market share leader and determine the price-quality segment-based on unit price-it is competing in.
An important question in performing cluster analysis is to figure out the number of clusters based on an a priori theory. Most consumer markets can be divided in three basic price-quality segments: premium, mid-price, and economy. These three basic segments can be extended to five: with the addition of super-premium and ultra-economy segments (Datta, 1996).
An equally crucial issue is to find out what each cluster (e.g., economy, mid-price, and premium) really

means.
Perhaps a good way to understand what each price-quality segment stands for in real life is to look at a socio-economic lifestyle profile of America. It reveals six classes (Note 12). Each class is associated with a price-quality segment typified by the retail stores where they generally shop: each a symbol of their lifestyle (Datta, 2011).


The anchor clusters-the top and the bottom-should be robust. In a cluster-analysis project limited to a range of three to five clusters, a robust cluster is one whose membership remains constant from three-to four-, or four-to five-cluster solutions.
 Finally, we followed a step-by-step procedure to determine the optimal solution. First, we start with three clusters. Thus, the bottom cluster obviously becomes the economy segment and the top cluster the premium segment. Next, we go to four clusters, and tentatively call them: economy, mid-price, premium, and super-premium. Then we go to five clusters. If the membership of the bottom cluster remains unchanged from what it was in the four-cluster result, it clearly implies that the ultra-economy segment does not exist. Then, if the membership of the top cluster also remains the same from a four-to a five-cluster solution, then the top cluster becomes the super-premium segment. This signifies that even in a five-cluster solution we have only four price-quality segments: economy, mid-price, premium, and super-premium. It means that either the premium or the mid-price segment consist of two sub-segments (see Table 1).

External Evidence to Validate Results of Cluster Analysis
Whenever possible, we have tried to seek external evidence to validate the results of cluster analysis. For example, many companies identify on their websites a certain brand(s) as a premium or luxury brand. A case in point is that of P&G which says that its plan is to compete in all "price points": super-premium, premium, and mid-price: except the economy segment (Datta, 2010b).

Testing Hypotheses
 I-That the market-share leader would be a member of the mid-price segment.
 II-That the market-share leader would carry a price tag that is higher than that of the nearest competition.

Results of Hierarchical Cluster Analysis
In It seems that Duracell's management is very likely to have realized that it needed to raise Duracell's unit price to keep it much closer to that for the market leader Energizer, as we have hypothesized.
To sum up: Although technically the results did not support Hypothesis I for 2007, we believe that-based on the above discussion-the overall results of this study did support the basic premise of Hypothesis I.

Relative Price a Strategic Variable
Finally, we performed one more test to determine the consistency and reliability of the results of cluster analysis in this study. So, we ranked the unit price of each brand for 2008 and 2007 for AA 4-pack Battery. All three measures of bivariate correlation-Pearson, and non-parametric measures Kendall's tau_b, and Spearman's rho-were found to be significant at an amazing 0.01 level!
We believe these surprising results became possible only because management in the AA 4-pack Battery industry must have been treating relative price as a strategic variable, as we have suggested.

The Role of Promotion
For 2008 promotional sales of AA 4-pack Batteries averaged 41% of total retail sales (Table 2). We performed bivariate correlation between total retail sales vs. promotional (PROMO) sales. The results were significant for all three measures-Pearson, Kendall, and Spearman-at the 0.01 level.  Both the market leader Energizer and the runner-up Duracell are in the Moderate group with a score of 43% and 42%, respectively: a score that is almost equal to the overall average.


The Private Brands fall in the Heavy group with a score of 55%. One would expect that since the Private Brands are competing in the economy segment, they would not have to rely on a heavy discount as well. Yet, it seems that the brand has found it necessary to employ the dual weapons of low price as well as a heavy discount to protect its market share of 10.7%.

Heavy Discount for Large Packs
It is interesting to see the variation in promotional discount for different size groups. The small-size group (2, 3, 5, 6) has the smallest discount rate of 29%. This is followed by 41% for the most popular 4-packs with sales of $190 million, and a rate of 63% for the 8-packs with sales of $195 million.
This pattern is remarkably similar to the promotional discounts employed by major sellers of Lager 18-24-30-packs (Datta, 2017).

Promotion History of Non-Food vs. Food Groups
As mentioned earlier, this is the twelfth study to analyze the competitive profile of individual U.S.
consumer markets.
The question is why discount intensity in the non-food group is much lower than that of the food group.
We believe one reason is that all the products in the non-food group--except AA Batteries--serve personal care needs for which most customers are willing to pay higher prices than those for most products in the food group. That is why the discount for Alkaline AA 4-pack Battery is closer to that for the latter than the former.
Second, while most of the products in the food group have many substitutes. That is generally not the case for the non-food group. Third, consumers have to go to the supermarkets frequently to buy food.
So, manufacturers offer higher discounts for food products to entice them to spend more money and to shop even more often.

Pattern Emerging in Price-Quality Segmentation Analysis
As mentioned earlier, this is the twelfth study that encompasses analysis of competitive profile of U.S. consumer markets. All these studies involved a testing of two hypotheses. The primary hypothesis is that the market leader would be a member of the mid-price segment.

Results in Nine Markets Support Hypothesis I
In nine of the twelve studies-that exclude Men's and Women's Razor-Blades, and Ground Coffee-the market leader was found to be a member of the mid-price segment, as we have hypothesized. Those market leaders are: (1) Edge Men's Shaving Gel, (2)  Alkaline AA 4-pack Battery.

Strategic Groups in the U.S. AA Alkaline 4-pack Battery Market, 2008
We found four strategic groups in this market. Their market shares (Note 13) are as follows: 1.

Conclusion
The path to market share leadership does not lie in lower price grounded in cost leadership strategy.
Rather, a business in pursuit of market-share leadership should try to serve the middle class by competing in the mid-price segment; and offering quality superior to that of competition: at a somewhat higher price to connote an image of quality, and to ensure that the strategy is both profitable and sustainable in the long run. The middle class is the socio-economic segment that represents about 40% of households in America.
Quality, however, is a complex concept that consumers generally find difficult to understand. So, they often employ relative price and a brand's reputation as a symbol of quality.
This study is based on U.S. retail sales for 2008 and 2007. For 2008 the total U.S. retail sales of Alkaline AA Batteries were $667 million. The pack sizes varied from 2 to 48, with the 4-pack size being the most popular with a 28 % share and with sales of $190 million. So, we have focused cluster analysis on this size.
We tested two hypotheses. (I) That the market-share leader would be a member of the mid-price segment, and (II) That the market-share leader would carry a price tag that is higher than that of the nearest competition.
For 2008 the results supported both Hypothesis I and II.
Although technically the results did not support Hypothesis I for 2007, we believe the overall results of this study did support the basic premise of Hypothesis I.
We also found that relative price was a strategic variable, as we have hypothesized.
We discovered four strategic groups in the industry.
This is the twelfth study that involves analysis of competitive profile of U.S. consumer markets. In nine of these studies the market leader was found to be a member of the mid-price segment, as we have hypothesized.