A corporate acquisition of $1 billion usually suggests a tech start-up making a new invention in smartphones which is then bought by giants such as Apple or Google. However, this is not the case with Dollar Shave Club, a simple business venture that sells men’s razor blades on a subscription plan.
Dollar Shave Club has been bought by Unilever for a whopping $1 billion. The venture is different from your typical start-up as it hasn’t invented anything new but instead has used clever marketing skills to convince the world’s largest consumer product company that it is worth a billion dollars.
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The success of Dollar Shave Club is best explained by Ben Thompson at Stratechery, who points out that Procter and Gamble is the largest producer of razors with their Gillette brand. Procter and Gamble has maintained its hold on the market by spending large amounts on research and development and marketing and distribution with the aim of preventing any other firm from building a sizable market share.
Michael Dubin, the founder of the Dollar Shave Club, took advantage of the fact that the basic razor model works just fine and doesn't need to be invented every year but rather marketed properly. He used the internet to market his product and Amazon for its distribution producing cheap razors.
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The trick worked as Dollar Shave Club now accounts for a 15 per cent share for razors in the US.
Dubin also used the rivalry between P&G and Unilever to his advantage. P&G’s decade long strategy in the market did not allow it to acquire the company but Unilever was more than happy to do so as it meant the company could finally make inroads into what had been dominated by its rival firm so far.
The deal is to be finalised in the third quarter this year, resulting in major profits for the venture capitalist who invested a relatively small amount of $150 million.
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This article originally appeared on Quartz.