Branding: Five New Lessons

The last time detergent and toothpaste giant Procter & Gamble Co. (PG ) made a bid for razormaker Gillette Co. (G ), it was out of desperation. Back in 2000, when the Cincinnati giant made an unsolicited bid, Gillette was a bargain: Despite its hit Mach3 razor, a series of earnings disappointments had hammered the stock. P&G was struggling, too, and so were a lot of other once-invincible brands. With fracturing TV audiences moving to the Web and cable, the classic 30-second spot that had made household names of the likes of Mr. Clean and Tide was losing traction. Consumers were starting to identify more with niche markets than with the one-size-fits-all brands that had long been the backbone of the consumer-products industry. Retail shelves were stocked with private-label rivals. Most frightening of all: The information-packed Internet threatened to expose those brands as nothing special. The age of the giant, mass-market brand seemed to be dead -- and so was a P&G-Gillette deal.

Oh, what a different story it was on Jan. 28 when it was announced that the wedding was on. Sales growth at both companies is on a tear, earnings and margins are up, and hit products are rolling out of their labs. P&G's sales growth is running at 8% a year, excluding acquisitions -- double the rate of the late 1990s. And the once-struggling razormaker fetched a price of $57 billion, 19 times earnings before interest, taxes, and depreciation. Why did Gillette do the deal? "I have a simple formula," says CEO James Kilts. "Strength plus strength equals success."