Diaper WarDelhi School of Management

Delhi Technological UniversityAnkit Malik – 11/MBAPrashant Agarwal – 31/MBARohit Pandey – 41/MBAVarun Gupta – 54/MBAVishal Joon – 57/MBA

Index

• Profiles of the corporate giants P&G and K-C• Product Profile Diapers• Introduction to case• Challenges faced• Solutions• References.

VisionBe, and be recognized as, the best consumer products and services company in the world.

MissionWe will provide branded products and services of superior quality and value that improve the lives of the world’s consumers. As a result, consumers will reward us with leadership sales, profit and value creation, allowing our people, our shareholders, and the communities in which we live and work to prosper.

Company Background

• Started in 1837 by William Procter and James Gamble

• First products were soaps and candles

• Procter and Gamble has nearly 300 brands in more then 160 countries

• Main Headquarter in Cincinnati, Ohio

• Employ 140,000 people • Current revenue $79.3 billion

•Gross Margin 15 Times the Industry Average•One of the best marketers in the world•Tightly integrated with the largest retailers in the US and around the world•Product innovation•Distribution channels all over the world

•Top Brands Losing Market Share•Health and Beauty Women Only•Lagging behind in online media presence & leadership•Slow Process Heavy Culture•Views Product Performance only•Expansion for brands is limited

•Doubling Environmental Goals for 2012•Utilizing online social networks•Going Green/Eco Friendly•Capitalizing on online media•Emerging markets•New acquisition opportunities•Selling directly to consumers•Design for better product experience

• Increase of regulations•Substitute brands that have a cheaper price•Private label growth•Slowdown in consumer spending in the US & globally•Key competitors expanding their product portfolios through acquisitions•Increase in raw material price

Vision

"To enhance the Health, Hygiene and Well Being of People Everywhere, Every day."

Consumer Brands

Company Overview• Global health and hygiene company

– Personal Products industry– Products made from natural or synthetic fibers– Advanced technologies in fibers, non wovens, and

absorbency.

• Founded in 1872 & headquartered in Dallas, TX• Consumers in more than 150 countries

worldwide• Manufacturing facilities in 40 countries• More than 56,000 employees• FY2009 Total Revenues of $19.15B

• More than 1.9 billion people (1/4 of the world’s population) trust K-C brands EVERYDAY.

Business Segments: Brands

Personal Care Huggies, Pull-Ups, Little Swimmers, GoodNites, Kotex, Lightdays, Depend, Poise

Consumer Tissue Kleenex, Scott, Cottonelle, Viva, Andrex, Scottex, Hakle, Page

K-C Professional & Other Kimberly-Clark, Kleenex, Scott, WypAll, Kimtech, Kleenguard, Kimcare

Health Care Kimberly-Clark, Ballard

•Cost advantage•Effective communication•Innovation•Online growth•Loyal customers•Strong brand equity•Strong financial position•Supply chain•Pricing•Reputation management

•Not innovative•Not diversified•Weak management team•Weak, damaged brand

•Competition•Cheaper technology•Economic slowdown•Exchange rate fluctuations•Lower cost competitors or imports•Maturing categories, products, or services•Price wars•Product substitution

•Acquisitions•Emerging markets and expansion abroad•Innovation•Online Business and media•Product and services expansion•Takeovers

Time Line Kimberly-Clark Proctor And Gamble

1960 In 1961 P&G enter this segment with the brand called Pampers ,but the prices remain high of $ .10/diaper which shows that it was purchasing partially completed components

1964 Slashed the Prices to $ .055/diaper

1968-1969 K&C entered the Market with a product Kimbies

It’s spread it’s wings in whole North America in 1969

1970 Share Market was just 8% While it was dominating the Market with 92% share

1974 Share Market Grew due to product superiority to 20%

While the share of P&G was decreasing but it realized the importance of R&D

Interest Started to decline and Market share felt

It innovated it’s product in form of Tissue to pulp fluff, and moving on to adhesive tab in the next year

Contd…..

Time Line Kimberly-Clark Proctor And Gamble

1976 Market Share kept low Introduced a new product in the form of Luvs with new features and it was priced 25-30% above pampers

1978 Realized their Mistake and introduced Huggies to replace Kimbies backed by a great marketing team & introduction with large Promotional & advertising

Due to introduction of Huggies, P&G reacted by rolling the Luvs nationally despite poor test results and suffered a setback.

1980 K&C huggies had just 7.1 % Market Share

P& G overall Market Share was 65.5 % share

1984 Huggies Market grew to 24% In P&G camp the share of Pampers was continuously falling but the share of Luvs was continuously increasing

1986 K&C stopped the Production of kimbies –their flagship product to make space for Huggies

Market share was lost as it was not changing itself to the times and the innovation being Made in the Diapers Industry.

Contd…

Time Line Kimberly-Clark Proctor And Gamble

Changed it’s strategies:-• Repositioned the Pamper as a Premium Product through improvement In pampers.• Invested $500 million in production system•$225 in additional advertising

1986 K&C introduced it nine months later

P&G introduced the Super Thin Diapers

1989 K&C with a 32% share P&G with a 48% share.

P&G appoints a new CEO Edwin Artzt which have a considerable experience in international disposable diapers

Other Developments in the Diaper marketTime Line Developments

1970’s Many companies started absconding the Diaper Mkt primarily due to two reasons:-• Due to Poor Marketing Communication of Product Benefits• Inability of some firms to reduce Manufacturing Costs to P&G level

1976 Diaper Market was just 35% of U.S. Babies due to Un-communicated Benefits.

1983 Aspirations of consumers Changed as they started wanting best products despite high prices or they wanted low prices.

1984 Market Share Captured by K&C was mainly from Pampers Share and the Other Share’s and the Luvs share kept on increasing.

1988 P& G was mainly depended on Japan for it’s raw materials.In 1988, Cellanese started Operations in U.S.

1989 Cost of Diapers Started decreasing due to investment in Machinery and both P&G and K&C was able to achieve 33% decrease in transportation Costs.

Pt’s of Importance First Mover Advantage

Johnson & Johnson was the one to introduce North America to diapers in 1940 but it was not able to completely Utilize it and Ultimately fled this segment in 1970’s .It was P&G which tapped the potential due to continuous R&D and improvement in Manufacturing Process.

Role of Diapers Both the P&G and the K&C were experiencing a Margin of 15 % in diapers in Comparison to the other Products in their basket.

Advantage with K&C Vertical Control provided the advantage of flexibility and Scalability under rapidly changing Competitive advantage.

Advantage with P&G It was able to harness the technological progress of Japan, due to which most of the time enjoyed the first Mover advantage. Always maintained a greater focus on the innovation part.It was present in Japan and Europe whereby the share was growing by 15% and 40 % respectively.

Acting Against Environmental Issues

Both P&G and K-C tried to avoid the complaints rather than addressing them, Secondly they tried to find the solution by deviating from the present Market to Incontinence Products for the Old.

The Case

The Diaper War: Kimberly-Clark vs Proctor & Gamble

This case highlights Kimberly-Clark's perspective on the fierce competitive battle with Procter & Gamble (P&G) in the diaper industry. The competitive struggle involves a broad range of issues including: rapid product development, international threats and opportunities, diversification options and public pressure over environmental concerns. In particular, Kimberly-Clark must decide on a response to P&G's most recent product introduction.

Pampered Kimbies

• Pampers launched in 1961• Priced at $ .10• Reintroduced in 1969 at a lower

price of $ .055• Kimbies was counterattack by

KC• Launched in 1968• In 1970s pampers continued to

surge its market share upto 92%.

P & G’s Luv to Huggies

• Test marketed from 1976 to 1978.

• Huggies was the answer from KC.

• Better than Pampers & Luv

• Huggies replaced Kimbies completely by 1986.

Super Thin Diapers

• P & G got the first mover advantage in this segment.

Challenges before the “North-American Disposable Diaper Industry”

•Environmental Issue:

In 1989, almost 19 billion disposable diapers were sold in North America. It produced an estimated 4 – 5.5 billion pounds of discarded diapers.

This constituted about 20 %( by volume ) of the residential landfills.

The “non-biodegradable” nature of the plastics used in the product attracted criticism.

Environmental groups had highlighted concerns about “potential health risks for sanitation workers” and “the threat to ground water”.

•Legal developments:

By 1989 , legislation taxing ,regulating, or banning the sale of disposable diapers had been introduced in 11 US states.

Most punitive measures were scheduled to come into effect in 1992-1994.

•Financial :

Transportation costs were estimated to compose at least 7 percent of the retail value.

The production of disposable diapers was capital intensive, involving a continuous flow of assembly utilizing large,complex,high-speed machines.

•Unpredictable market conditions:

Uncertain market share forecasts and fluctuations led ,at different times ,to “ product shortages” and “capacity surpluses”.

•Changing trends in international markets:

Japan:

Following World War II, national standards were introduced for cloth diapers as a means of improving overall hygiene. Also, the use of cloth diapers was encouraged by a Japanese tradition.

In 1970s, P&G had over 90% of the Japanese disposable market.By 1985, its share fell to about 7% !!!

KAO Corporation ,a Japanese soapmaker launched a brand of super –thin diapers , named “Merries”.

Europe:

Europe composed of protected national markets, thus limiting the production, marketing and distribution economies.

European industry leaders emerged, leading to emergence of several strong country-specific firms .

Market Opportunities

• Incontinence Products

• Estimated sales in US market by 1990 - $1 Billion

• Difference in strengths of both the firms

• November 1, 1989, Mr. Edward Artzt was appointed as P&G’s new CEO

Recent Events at P&G

Signs of Change

• Change in style for the first time

• P&G’s huge advertising and promotional campaigns

• Kimberley Clark developed a similar product

• Importance of balance between short term & long term perspectives

Conclusion

They should work in harmony to prevent external players entering into diaper market. Since first-mover advantage goes to any one of them, they can act as a cartel and play safe in the market without loosing much of their profits. After all it looked to be a win-win situation for both the players. But at last, both companies opted for different market attack.

References