Why Unilever Paid $1 Billion for Unprofitable Dollar Shave Club

Unilever purchased Dollar Shave Club, a startup that sells razors and grooming products to men, for $1 billion. That price may seem absurd for a company that is not yet profitable, however Dollar Shave club is growing quickly.

The company’s revenue is expected to jump from $152 million in 2015 to $200 million in 2016. Dollar Shave Club was founded 2012 by Michael Dubin and delivers razors and other grooming products to subscribers each month by mail. The acquisition also gives Unilever a foothold in the U.S. men’s razor market and allows it to compete with its rival Procter & Gamble, who owns Gillette, the top player.

In contrast, Gillette’s market share has shrunk from 71% of the U.S. market in 2010 to 59% in 2015. Gillette was caught off guard by the success of Dollar Shave Club and tried to halt its growth by filing a lawsuit against Dollar Shave Club claiming patent infringement.

Understanding Future Customer Demand

The acquisition of Dollar Shave Club highlights the importance of understanding and capturing future customer demand. The ability to fulfill the demands of your current customers and of your customers in the future remains key to the success of any company. After all, customers are what keeps you in business!

This demand-driven approach is incredibly important in pursuing strategic mergers and acquisitions that help you grow long-term. Not only does Dollar Shave Club allow Unilever to compete in the U.S., it allows Unilever to capitalize on the rise of ecommerce and a popular brand name. More and more consumers are buying products online rather than in stores and subscription-based businesses are increasingly popular. Amazon even has a button that literally allows consumers to order everyday goods like soaps, laundry detergents, dryer sheets, and even some groceries, at the push of a button. Purchasing Dollar Shave Club is not just about growing today; it’s about growing in the future.

Clearly the market is different than it was even five or ten years ago and it will continue evolving over the next five, ten or 15 years. As a business leader you have two choices – maintain business as usual and react when faced with a new competitor and industry disruptor, or proactively develop a plan to leverage changes to your advantage. The choice is yours.

Photo Credit: Paul Roth via Flickr cc


    • Edward Pratesi on August 6, 2016 at 12:12 pm

    It seems that many businesses are seeking the Holy Grail of repeat business through a subscription model. Ultimately the success of the endeavor will be quality and service. It will be interesting to see for example the future growth of subscription model companies such as Birchbox.

    As to the acquisition itself, how does Unilever create brand protection from competitors?

    Is the business model replicable?

    Why not Gillette entering into the fray?

    Are the products offered “commodities”?

  1. Hi Edward,

    You bring up some very good points and you’re right that quality and service are critical to gaining and keeping customers. In the case of Dollar Shave Club, in addition to quality products and service, they have an edge with a unique and strong brand. Likely Unilever will allow Dollar Shave Club to continue operating as a separate brand rather than incorporating it into a bigger Unilever brand. Unilever needs to “protect” the Dollar Shave Club brand, rather it needs to make sure it doesn’t ruin the brand during integration.

    The business model in terms of selling razor via subscription is replicable, but creating a strong brand and customer loyalty is not. Gillete actually launched its own subscription-base service back in 2014 to compete with Dollar Shave Club. You can read about it here: http://blogs.wsj.com/corporate-intelligence/2014/04/29/gillette-subscription-service-takes-aim-at-dollar-shave-club/.

    And yes, the products are commodities, which is why it was difficult for Gillette to sue Dollar Shave Club for patent infringement.

    Thanks for reading and commenting.

    – David

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