The Letter from Neff: Believe it or not, P&G ready to charge into battery biz

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Contributing Editor Jack Neff's deeply reported, deftly written stories on Procter & Gamble Co. and other marketers are well-known to readers. Now, each month he'll share his take on the news in Letter from Neff, a seemingly off-the-cuff yet smartly insightful analysis of crucial marketing issues.

Procter & Gamble Co. Chairman-CEO A.G. Lafley doesn't understand the battery business, he confessed recently to Fortune. That's shocking, considering he proposes to spend several billion dollars to buy Duracell as part of a $57 billion deal for Gillette Co.

Stranger still, Mr. Lafley is well known as a hands-on, detail-oriented guy who rarely fails to understand anything. So there may be more here than meets the eye.

Yes, Duracell may take its place alongside Folgers, Pringles, Bounty and Charmin among billion-dollar P&G brands-loved by some of the company's former CEOs-that don't feel billion-dollar-size love from Mr. Lafley.

He probably wouldn't have bought Duracell on its own. Some Gillette people aren't very enthusiastic about it, either. In less-guarded moments, they point out how much harder it is to market batteries than razors, because consumers notice differences between razors much more than batteries.

Trouble is, while battery volume grows a healthy 4% annually, as Gillette Chairman-CEO Jim Kilts recently pointed out, sales have been largely flat to down in the U.S. Wal-Mart Stores and dollar stores are heavily promoting cheap batteries based on old technology. Without much innovation, battery brands are getting squeezed on price.

Even so, batteries long have held a strange fascination for P&G.

makes sense

The obvious reasons are that batteries still have strong upside in developing markets and synergies with a growing P&G gadget arsenal built around the same cheap-razor, high-margin-replacement-blade marketing idea that made Gillette rich.

Less obviously, P&G has done extensive battery research and development. It even recruited East European battery technologists to work in the U.S. under Mr. Lafley's more tech-oriented predecessor, Durk Jager. Even since Mr. Jager left more than four years ago, P&G has filed about 10 times as many battery and electric-cell-related patent applications as Gillette.

A P&G technology to double the life of alkaline batteries never proved marketable. But it also has a more interesting technology for making batteries that can be printed on paper, tags or packages, according to one executive familiar with it.

Potential applications include market and shopper research using radio-frequency identification tags on packages, battery-powered wrinkle-fighting patches, drug-delivery systems, even diapers that diagnose disease-all subjects of P&G research.

Printable batteries haven't proved commercially viable yet, either. But now Wal-Mart Stores and the U.S. government, with enthusiastic cooperation and urging of P&G and Gillette, is creating an RFID industry by requiring suppliers to use the technology to track shipments. P&G's printable batteries could end up being used to overcome technological limits of current tags, which would in turn make it cheaper to market them on other things.

Pie in the sky? Maybe. P&G certainly has plenty of R&D that never made it to market. But maybe batteries could find love at P&G after all.

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