marketing decision making and case analysis

December 15, 2011Drypers Corporation – National Television Advertising Campaign

Marketing Decision Making and Case Analysis

Drypers Corporation – National Television Advertising Campaign

1.0 Introduction

In attempting to the case study of Drypers Corporation, our group used the

‘DECIDE’ decision making process model. The six steps used are the systematic

decision-making process. The first step is Define the problem which is the most

important and crucial step. Defining a wrong problem leads to making wrong

decision. Second step is Enumerate the decision factors. In this step, there are

two sets of decision factors that must be enumerated which are 1) alternative

courses of action and 2) uncertainties in the competitive environment

The third step is Consider relevant information. This is where all relevant

information that relates to the alternatives identified such as characteristics of the

industry, consumers, competitive environment and the organization were being

discussed and analyzed. The next fourth step is Identify the best alternative.

From the alternatives identified in step 2, this is where the decision to select the

best alternative being made based on the relevant information analysis.

The fifth step is consider the important step once the best alternative has

been identified; Develop a plan for implementing the chosen alternative.

Implementation plan can be developed through the marketing plan. The last step

or the sixth step is Evaluate the decision and the decision process. This is the

part when evaluation being made as whether the decision has actually been

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made or not and was the decision appropriate given the situation identified in the

case setting.

2.0 Case Summary

Drypers Corporation is a producer and marketer of premium-quality,

value-priced disposable baby diapers and training pants. The products are sold

under the Drypers brand name in the United States and internationally. In late

1997, senior executives at Drypers Corporation were discussing on the merits of

spending upwards of $10 million on national television advertising in 1998 for its

Drypers brand of disposable diapers. However, the company had not used

television advertising in its 10-year history and spending $10 million expenditure

represented a 33% increase in the company’s combined advertising and

promotion budget. In 1997, the advertising and promotion was budgeted at about

$30 million.

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3.0 Identification of the strategic issues and problem

3.1 Define the problem

The problem statement for the case is should Drypers Corporation

proceed to spend $10 million for National Television Advertising Campaign for

Drypers brand of disposable diapers? More specific, the problem is defined as;

how can we build brand recognition (objective) and increase short and long term

sales and profit (success measure) with significantly lower advertising and

promotion expenditures and lack of television advertisement know-how

(constraints).

The issues discussed by the management in Drypers is basically

regarding with the communication strategy. Communication is important in

disseminating the offerings to selected market. National television advertising

campaign is one of the strategies in communicating an offering to the public. The

marketing objective of Drypers is to build and increase brand recognition among

consumers. In order to measure the success of the objective, Drypers need to

look at the impact on sales and profit; increase in short and long term sales and

profit. However, in order to achieve that, Drypers has its own constraints which

are the budget for the advertising and promotion is low as compared to its

competitors and lack of television advertising know-how. Drypers has no

experience in launching the national television advertising campaign, and it will

be the first one if they did it.

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3.2 Enumerate the decision factors

Two sets of decision factors are the alternative courses of action and

uncertainties in the competitive environment. In the case of Drypers, the

alternative courses of action are as below;

Figure 1.0 - The alternative courses of action

Based on Figure 1.0, there are two alternatives in the case of Drypers

Corporation. The first one is for the company to spend $10 million on the initial

national television advertising campaign. The other alternative is to reject the $10

million budget and did not proceed with the television advertising campaign. The

decision making will be evolve around these two alternatives.

Each alternative has its own advantages and disadvantages. If Drypers

choose Alternative 1 or Alternative 2, the advantages and disadvantages will be

as follow:

Alternative 1 Alternative 2Advantages 1. Increase in brand

recognition and awareness

2. Boost demand

3. Increase penetration of

1. No additional cost for advertising and promotion

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Alternative 1

Spend $10 million budget for National Television Advertising Campaign

Alternative 2

Reject $10 million budget for National Television Advertising Campaign


grocery retail store4. Moving from higher-cost,

promotion driven sales to brand-driven sales

Disadvantages 1. Lack of experience and know-how on television advertising

2. Increase in cost of advertising and promotion

1. Remain or loss existing market share

2. Low level of Drypers brand awareness

3. Decrease in sales

Table 1.0 – Advantages and disadvantages of alternatives

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Another factor to be enumerated is the uncontrollable factor; uncertainties

in competitive environment. One uncertainty identified for Drypers case is the

action of competitors. If Drypers spend $10 million on the television advertising,

the competitors (Procter & Gamble and Kimberly Clark) might aggressively

advertise the counter-advertise aiming to discrediting Drypers. On the other

hand, if Drypers did not do the television advertising, the company might lose its

market share to the competitors. This is because the Procter & Gamble

(Pampers) and Kimberly Clark (Huggies) spent $52.8 and $57.2 million

respectively on the television advertising in 1997. The huge amount of dollar

spent on the media advertising shows an aggressive promotional activity by the

two manufacturers. It is a threat to Drypers due to general lack of national brand-

name recognition and less extensive national production and distribution

capabilities.

Figure 2.0 - The uncontrollable decision factors

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Uncontrollable decision factors

Aggressive advertising by competitor

- Procter & Gamble and Kimberly Clark might counter-advertise to

discredit Drypers

Passive advertising (maintain)

- Procter & Gamble and Kimberly Clark might

maintain its current level of advertising

Qualitative - Situation Analysis

SWOT analysisIndustry analysisCompetitor analysisCompany analysisCustomer analysis

Quantitative - Financial Analysis

Market trend of disposable diapers and training pants in USPro-forma income statement for the year 1998


4.0 Analysis and evaluation

4.1 Consider relevant information

The third step in the decision making process is the consideration of

relevant information. The relevant information can be divided into two categories

which are the qualitative information and quantitative information. For the case of

Drypers, both the information is important in deriving a decision in marketing.

Below are the breakdowns of information required:

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Figure 3.0 – Consider relevant information

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4.1.1 SWOT analysis

Table 2.0 below shows the external and internal forces that influence the market

opportunities for Drypers. The SWOT analysis summarized the strengths,

weaknesses, opportunities and threats that Drypers is currently facing.

Internal Factors Strengths Weaknesses

1. Offerings Value-priced disposable baby diapers & training pants with premium quality

Narrow product line

2. Brands Conversion to one common package design and brand name - Drypers

Lack of national brand name recognition

3. Distribution Major distribution in grocery store market

Less widespread distribution in mass merchandise and drugstore chain channel

4. Price Retail prices at 40% lower than premium price brand

-

5. Communication (advertisement, promotion and sales)

Extensive used of print advertising, coupons, sampling & in-store promotion

Lack of communication media that appeal to multiple senses – sight, sound, color and movement (e.g. television advertisement)

6. Manufacturing Has 9 manufacturing location in US, Brazil, Puerto Rico, Argentina & Mexico

Less extensive national production to supply mass merchants & drugstore s

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7. Innovation Leading in product innovation - Introduction of diapers that focus on skin care, diapers fit, absorbency, & leakage control

-

8. Finance Strong cash flow

Issuance of bonds to refinance debt & finance production capacity

-

Table 2.0 – Drypers SWOT Chart

External Factors Opportunities Threats

1. Expansion Growth opportunities exist at international level (estimated international market $12 billion)

Opportunity to expend product line

Modest growth in US disposable diaper market

2. Technology Availability of new technology for enhancing product innovation

-

3. Competition - Extensive competition from competitors

The emergence of counter strategy on

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discrediting by competitors.

4. Strategic alliances Licensing agreement on trademark & characters of cartoon’s figure (Sesame Street)

Selective & high requirements of licensing alliances.

5. Economic - International economic uncertainty

Rising cost of raw materials.

Table 2.0 – Drypers SWOT Chart (continued)

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4.1.2 Industry analysis

Drypers Corporation falls under the disposable and training pants industry.

The retail dollar value of unit volume of the U.S. disposable diaper market has

recorded modest growth in recent years due to the trend in fewer infants under

30 months of age and diaper improvements in absorbency and leakage control.

The retail dollar value of the U.S. disposable diaper market was estimated to be

$ 3.93 billion in 1997. The retail dollar value of the training and youth pants

market was estimated to be $ 595 million in 1997. Trends in U.S disposable and

training pants market are shown below:

1994 1997 1998 (forecast)

Infants (millions): birth to 30 months

10.0 9.7 9.6

Diapers sold (billions of units)

17.2 17.5 17.6

Diaper retail dollar sales (millions)

$3,880 $3,930 $3,942

Children (millions): 18 months to 8 years

26.1 26.2 26.2

Training & youth pants sold (millions of units)

970.0 1410.0 1597.2

Training & youth pants sold retail dollar sales (millions)

$458.0 $595.0 $626.1

Table 3.0 – Trends in the US Disposable Diaper and Training Pants Market

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Based on Table 3.0, it is forecasted that the number of infants in 1998 will

decrease to 9.6 million and the number of children will remain at 26.2 million.

However, the units and dollar sales of both diapers and training pants will

experience an increase relatively. Disposable diapers and training pants are

distributed principally through grocery stores, drugstores and mass merchants.

The retail sales of diapers and training pants are approximately accounted to $ 2

billion for grocery stores. Manufacturers of disposable diapers and training pants

are typically grouped into 3 (three) general categories which are premium-priced

branded manufacturers, value-priced branded manufacturers and private-label

manufacturers.

We further analyzed the outside forces affecting the disposable diapers

and training pants industry using Porter’s Five Forces Model. The five forces are

as below:

a) Intensity of rivalry

There are no exit barriers in this industry. The industry is highly concentrated

and the intensity of competition is moderate. The big players in this industry

are Procter & Gamble and Kimberly Clark. The players in the industry are

facing high fixed cost.

b) Threat of new entrants

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Disposable diapers industry has a low threat of new entrants. This is due to

high setup cost and the need to achieve economies of scale in the industry

makes it hard to be penetrated.

c) Threat of substitutes

Basically, the threat of substitutes is low in the industry due to ease and

convenience used of disposable diapers keep the use of cloth diapers down.

d) Bargaining power of suppliers

The industry is having a medium bargaining power of suppliers. This is due to

few large manufacturing suppliers on the raw materials. On the other some of

the players such as Kimberly Clark have the ability to produce their own raw

materials.

e) Bargaining power of buyers

However, in terms of buyers, the bargaining power is high. Brand awareness

is extremely important in this industry. This is because buyers are very

sensitive to price and the value on each dollar they spend. In fact, nowadays,

buyers have become so knowledgeable and they are very informed of the

products available in the market.

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4.1.3 Competitor analysis

The manufacturers of disposable diapers and training pants are typically

grouped into 3 (three) general categories which are premium-priced branded

manufacturers, value-priced branded manufacturers and private-label

manufacturers. Procter & Gamble and Kimberly Clark are the leading premium-

priced branded manufacturers with their well-known Pampers and Huggies

premium brands, respectively. These two are the competitors of Drypers

Corporation. Both of them compete on the basis of product quality, product

features and benefits, and price. They invest heavily in research and

development, and consumer advertising and marketing support for their brands.

Below is the breakdown of their media expenditures:

1997 Media Advertising ($ in Millions)

Manufacturer Brand Television Print Total

Kimberly-Clerk Huggies $57.2 $18.5 $75.6

Procter & Gamble Pampers $52.8 $16.8 $69.6

Table 4.0 – Media expenditures for P&G and KC

From the above table, both of the manufacturers spend huge amount of

dollar on media advertising. Kimberly Clark and Procter & Gamble brands have

an estimated 78.9% of total U.S. retail dollar sales of disposable diapers and

training pants in 1997. Due to their extensive distribution coverage in grocery

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store, mass merchant and drugstore markets, the combined share of these two

companies has increased since 1994.

4.1.4 Company analysis

Drypers Corporation is a producer and marketer of premium quality, value-

priced disposable baby diapers and training pants typically sold their products

under brand name of Drypers. There is a decrease in the company’s domestic

net sales in year 1997 from 86.6% to 66.7%. The company is the sixth’s world

largest producer of disposable diapers and the third largest marketer of brand-

name diapers in United States. Drypers is a value-priced branded manufacturer

that market its products through grocery stores due to general lack of national

brand-name recognition and less extensive national production and distribution

capabilities necessary to supply the large mass-merchant and drugstore chains.

Instead, Drypers rely on in store promotions and couponing, often using

local or regional print advertising and cooperative advertising and promotion

programs with retailers. The company has recorded a significant improvement in

sales and profitability since 1995. For the purpose of this case, we have

forecasted the sales and profit of Drypers for the year of 1998 through pro-forma

income statement. Based on Table 5.0, the projected net sales of Drypers in

1998 will be $345.3 million. The net income/ profit will total to $22.9 million,

increase from the year 1997 (by 95%). However, in 1997, the net income was

affected by the extraordinary item.

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Table 5.0 - Pro-forma Income Statement for year 1995 - 1998 (in millions)

1995 1996 1997 1998

Net sales 163.9 207.0 287.0 345.3

(-) COGS 114.1 126.1 175.5 202.3

Gross profit 49.8 80.9 111.5 143.0

(-) Selling, general &

admin expenses

53.7 70.3 90.0 106.7

(-) Unusual expenses 3.2 - - -

(-) Restructuring charge 4.3 - - -

Operating income (loss) (11.4) 10.6 21.5 36.3

(-) Interest expense, net 7.6 8.6 9.8 10.7

(-) Other income - - 0.253 -

Income (loss) before tax (19.0) 2.0 11.4 25.6

(-) Income tax provision (3.8) 0.309 2.4 2.7

(-) Extraordinary item - - (7.8) -

Net income (loss) (15.2) 1.69 1.20 22.9

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For Drypers, continuing manufacturing and marketing brands of high

quality but are sold at lower price is a key to overcome the fierce competition of

the diapers and training pants market. Product innovation is also another key to

the company’s success. It may not able to compete with leading brands in terms

of pricing but the innovations that are being done has proven to be working for

Drypers. National media advertisement such as television advertising is also one

of the ways by which the Drypers brand will be established nationwide and will be

known by most Americans.

4.1.5 Customer analysis

The information that will be considered in customer analysis will be target

market, behavior factors and customer’s needs This information will help Drypers

to better understand its customers in the market.

a) Target market

Drypers Corporation products are for the babies and children. The target

market is the infants (babies) and children below age of four. Their mothers,

primarily between the ages of 18 and 49, are the niche market who decide on

the brand of diapers and training pants and usually make the purchase.

b) Behavior factors

The growth of U.S. disposable diaper market recorded modest growth in

recent years. This is due to an increase in information on reproductive health

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and family planning. It is forecasted that in year 1998, the number of infants

decline due to improved family planning. Furthermore, the improvements in

absorbency and leakage control for diapers and training pants also

contributed to the modest growth. In terms of purchasing behavior, the

customers are at the stage of preference of buying process. It means that

they are very well informed on what the product is but are looking at which

brand they prefer. In considering the brand preferences, the customers will

look into the information on price, quality, featured values, benefits and

convenience of accessibility of the product.

c) Customer’s needs

The customers or consumers are in constant look for disposable and training

pants which are high in quality but good value for their money. So, as a

company, they should consider what the needs of the markets are and try to

meet their needs. Even though it is expected that infant birth is declining, the

diaper units and dollars sales are still on an increasing trend (1997 – 17.5

billion units sold = $3.9 billion retail sales). This is because the demand for

disposable diapers is still high due to the product features that are handy

have made mothers’ life easier as compared to the use of cloth diaper.

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A1 - Spend $10 million for national television

advertising

Aggressive advertising Estimated sales

$330 million

Passive advertisingEstimated sales

$345 million

A2- Do not spend $10 million for national

television advertising

Aggressive advertising Estimated sales

$267 million

Passive advertisingEstimated sales

$320 million


4.2 Identify the best alternative

A framework in identifying the best alternative is the decision analysis. A

decision tree framework needs to be developed. In the case of Drypers, the

decision analysis tree is as below; considering the actions (alternatives) that

could be taken by the company, the potential response from competitors and the

outcomes.

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Figure 4.0 – Drypers Decision Tree

Based on the decision tree, there are two alternatives available; 1. Spend

$10 million on national television advertising or 2. Do not spend the $10 million.

Each alternatives lead to two responses from competitors (Procter & Gamble and

Kimberly Clark) which are the uncontrollable decision factors of aggressive and

passive advertising. Each response will then lead to the outcomes. There are

four outcomes based on the two responses under each alternative. In the case of

Drypers, the outcomes are in the form of estimated sales. For example, if

Drypers chose to spend the $10 million and the competitor responded by

aggressively advertise to discredit Drypers, the estimated sales will be $330

million.

In order to derive to a decision on which is the best alternative, we will

calculate the difference between the two outcomes under one alternative. The

calculation is as below:

Alternative 1: the difference between estimated sales under aggressive and

passive advertising

Difference = ($345 - $330) million

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= $15 million

Alternative 2: the difference between estimated sales under aggressive and

passive advertising

Difference = ($320 - $267) million

= $53 million

From the above calculation, we can see that alternative 1 is better than

alternative 2. This is because the difference is small under alternative 1. In

alternative 1, even in the worst case scenario, if the competitors aggressively

advertise to make it hard for Drypers, the loss of sales is only about $15 million

as compared to alternative 2 which is $53 million (huge loss). Therefore, we

choose alternative 1 (A1) meaning to say Drypers Corporation will spend $10

million on national television advertising for disposable diapers under brand

name Drypers for the first time in its history.

5.0 Recommendations

5.1 Develop an implementation plan of chosen alternative

We developed a marketing strategy based on the chosen alternative for Drypers

Corporation. Drypers Corporation’s marketing strategy will comprised of the

following aspects as it faces a new and challenging event in the promotion of its

flagship brand, Drypers, in the United States.

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Drypers Marketing Plan for the year 1998

I. Mission

Drypers Corporation is a manufacturer of diapers and training pants that is

known for premium-quality value-priced brand. It is the corporation’s mission to

establish one brand (Drypers) for the diaper market that will be known nationally

and worldwide and to challenge leading competitors.

II. Marketing objectives

The following are the objectives of the company in terms of its marketing

aspects:

To increase brand awareness/ recognition for Drypers as a national brand

that stands for quality and innovation in order to boost demand

To reduce dependence on direct promotional spending by moving away

from higher-cost, promotion driven sales to brand-driven sales

To increase penetration of grocery outlets as well as in mass merchants

and chains of drugstores

III. Financial objective

The following is the company’s financial objective: As a result of the national

television advertisement that will be done in the U.S., the financial objective of

the company is to increase sales, thereby increase in profit in the year 1998.

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IV. Target market

The consumer for diaper is infants or babies. Specifically, Drypers Corporation

target market are mothers age 18 to 49 years old who have babies aged 4 years

and below because they are the one who make decision in buying the product.

V. Product positioning

Drypers Corporation will continue to provide premium-quality diapers and training

pants at lower prices (value-priced) at the same continuing to be the first in the

market in terms of product innovation and differentiation.

VI. Product differentiation

Drypers differentiates its product through innovation of Drypers with Aloe Vera,

Drypers with Natural Baking Soda, and value-added features to training pants,

including a one-piece design fit to make them look more like real underwear. In

addition, Drypers will include antibacterial treatment as one of the features for

product differentiation.

VII. Strategies

The corporation will work on the following strategies to attain its objectives:

Drypers will continue doing product innovations so that Drypers brand will

always be differentiated from the rest in the market

Offer branded products to consumers which the corporation regards as

“Everyday Value”

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Another strategy will be to continue pursuing international market

expansion

Add up to the existing product lines that will include additional consumer

products

Drypers will provide higher-margin products for retailers.

Adopt pull communication strategies in building brand awareness of

Drypers in order to penetrate grocery stores and mass merchants

VIII. Marketing program

The company will employ the following marketing program

Product strategy – Drypers product (diapers) will focus on skin care, in

addition to diaper fit, absorbency, and leakage control. The product will

have value-added features such as aloe vera for skin smoothing treatment

and natural baking soda for odor control. In September 1998, Drypers will

introduce Drypers Supreme with Germ Guard Liner (which include

antibacterial treatment).

Price strategy - Drypers will continue delivers on its value proposition with

retail prices that are below 40% from premium-priced brands

Place strategy – Drypers will break into mass merchants by getting its

products on shelves in Wal-Mart and Target. Distribution among mass

merchants and drugstore chains will be increased and distribution among

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grocery stores will be maintained in order for its products to reach

consumers.

Promotion strategy – Main focus on promotional strategy will be the

national television advertising campaign. The strategy to be adopted is

pull communication strategy whereby Drypers seeks to create initial

interest among potential consumers, who in turn will demand the offerings

from intermediaries (pulling the offering through marketing channels).

Television advertising will build consumer awareness on Drypers as a

national brand thus, boosting demand that will increase penetration in

grocery outlets. Increased grocery penetration will increase the

penetration in mass merchants. This is where the pull effects will take

place.

The national television advertising campaign will run on the first two

quarters (six months) in year 1998. The advertisement will be a 30

seconds commercial that will be aired on prime time. In line with that,

Drypers will continue its existing promotional programs such as

advertising in parent-oriented magazines, regular places coupons in daily

newspapers, direct mail, and in store promotions.

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IX. Marketing budget

The national television advertising will move the expenditure budget upwards by

$10 million. However, in the second half of 1998, total advertising and promotion

costs will be reduce as a percentage of sales to pre-advertising levels.

X. Pro-forma income statement for the year 1998

Net sales 345.3 (million)

(-) COGS 202.3

Gross profit 143.0

Selling, general & admin expenses 106.7

Operating income 36.3

(-) Interest expense, net 10.7

Income before tax 25.6

(-) Income tax provision 2.7

Net income 22.9

It is forecasted that sales will increase to $345.3 million in the year 1998 due to

additional spending of $10 million on television advertising. This will contribute to

net income of about 22.9 million for Drypers Corporation. In addition, an increase

in sales of Drypers will continue making the company grows stronger and have a

good placing in the market share.

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5.2 Evaluation and control

Through the marketing plan developed, Drypers has strategically

defined its marketing outlook for both the company and for the national

television advertising campaign for the year 1998. The corporate mission

and objectives have been projected and the strategies in achieving the

objectives have been defined. In order to guarantee success on the plan,

Drypers will need to evaluate the progress towards the objectives in each

quarter to determine if the marketing program is working properly and

profitably.

Drypers need to form a marketing research team to ensure that the

television advertising campaign is smoothly run. One of the qualitative

researches that can be done initially is to conduct focus group discussions

(FGDs) to evaluate the television advertisement. The FGDs will provide

the company insights regarding the perception of viewers of the

advertisement especially if it is effective or not in terms of establishing the

brand name Drypers. Succeeding surveys may also be done on a

quarterly basis to gain insights on the effectiveness of the advertisement

from a larger number of people.

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6.0 Conclusion

In conclusion, the decision on Drypers Coporation plan for the year 1998

has been made by choosing the alternative of spending $10 million on the

national television advertising campaign. We derived at the conclusion on this

alternative due to the reason that Drypers’ objective is to build brand awareness

through advertising and shifting to brand-driven sales strategy. We are able to

see that Drypers has the opportunity to go into national advertising because;

there is a favorable demand for diapers, the product can be significantly

differentiated from its competitors and the product has hidden quality and

benefits that can be describe through heavy end-user (consumer) advertising.

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Calculation

Pro-forma income Statement for year 1998 (in millions) – using CAGR from year

1995 to 1997

The pro-forma income statement for year 1998 is calculated using the formula of

Compound Annual Growth Rate (CAGR) which means the year-over-year growth rate of

an investment that over a specified period of time for the company.

The compound annual growth rate is calculated by taking the nth root of the total

percentage growth rate, where n is the number of years in the period being considered.

The formula can be written as follows:

CAGR is not the actual return in reality. It is an imaginary number that describes the

rate at which an investment would have grown if it grew at a steady rate. Moreover,

CAGR is a way to smooth out the returns which invested by the company.

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References

Healy, G. (2008). Strategic Marketing Analysis (Second Edition ed.): Cengage Learning Australia Pty Limited.

Kerin, R. A., & Peterson, R. A. (2010). Strategic Marketing Problems (Twelfth Edition ed.). New Jersey: Pearson Education, Inc.

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marketing decision making and case analysis

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