The disposable diaper industry1. Barriers to entrya. High Cost for machines/setup costb. Competitionc. Incumbent advantage high r&d, distribution, masss shipping, low advertising ( offer retailer low allowance), customer loyaltyd. Economic of scale

Why do you want to enter?Return, Growth and Risk Barrier for entry is high since there are a lot of barrier Economic of scope using the same channel, they can deliver more productIf selling another product it will destroy the company? WhyDifferentiation more margin (why not product differentiation?)Cost leadership low marginWhy no price war in express mail? When should we go for price warWhy P&G follow other companys product?

The Disposable Diaper Industry in 1974

Disposable Diaper Industry 1974 Estimated sales of $370m 1973 Major players Procter & Gamble, Kimberly Clark, Colgate-Palmolives subsidiary Kendall, Johnson & Johnson, Union Carbide, Scott Paper etc.History Prior to 1966,reusable diapers were the most used form of diapers P&G led the growth of Disposable Diaper Industry through the acquisition of the Chairman Paper Company in 1957 Pampers by P&G was the first successful disposable Diaper Each of the companies were using different technology to develop diapers Scott Paper -> Two piece principle, Kimberly Clark fluff pulp technology Though a lot of firms got into the disposable diaper industry, due to explosive growth many of the firms put an end to some of its products and some of the firms like Borden, Chicopee had exited the industry all together after sustaining considerable lossesProduct Disposable Diapers One-piece triangular or rectangular pads with three layers Outer layer: water proof plastic film, Middle layer: highly absorbent, cellulose based filler material, Inner layer: hydrophobic layer next to the babyVariety of ProdcuctsDiaper VarietyBaby Size

NewbornUp to 11 or 12 pounds

DaytimeFrom 12 to 22 pounds

OvernightFrom 12 to 22 pounds with extra absorption capacity

ToddlerOver 22 or 23 pounds

Toddler OvernightOver 20 pounds with extra absorption capacity

The market standing of a Diaper Brand was based on performance. Any diaper which performed poorly lost market positionDemand 15-20 billion diapers per year US market; grew rapidly after introduction of pampers Cost was not a determining factor and parents selected diapers based only on performance Factors influencing the growth of the industry Increasing number of working mothers Better education and decision to postpone having children Improvement in quality of disposable diapers Better advertisements reaching out to more people Further growth was expected. Growth a function of forecast births, disposable diaper penetration and the number of diapers consumed per baby Increase in number of women of child bearing age to offset the declining birthrate Forecasted penetration of 70-75% of diaper changes by 1980 Usage rate ambiguous- depended on the future product improvements that might make diaper industry more absorbentDistribution Sales through supermarkets, drugstores and mass merchandisers Gross margin of 10 to 28% of retail selling price, with a median of around 18 20% Represented 63% of the sales and 50% of gross profit of baby care products in supermarkets Retailers allocated significant shelf space and carried two or more branded diapers Retailers looked for aggressive support from the manufacturer in the form of sampling programs, consumer advertising and promotional allowances Brokers were used to sell the product and some firms had their own sales forceMarketing Complex and involved a variety of vehicles Extensive sampling through hospitals Couponing Consumer advertising Test marketing

ManufacturingThe sequence of the manufacturing process can be described as below

Diaper Machine Considerations Operations Staffed by 4 complete crews Operated 80% of the week at the rate of 400 diapers per minute Speed dependent on engineering improvements and complexity of diaper Rejects and scraps have significant cost impact Time for learning process and improving efficiency Procurement Lead time of 12-18 months Much costly and major proprietary modifications for speed and specifications Complete line setup cost - $2 million to $4 million Three to four machines per plantOther considerations Rising prices for fluff pulp in 1974 Fluff pulp and liner generally purchased, sometimes integrated Transportation costs significant, benefits of scaleResearch and Development High investments Product improvement and Manufacturing process improvement Significant changes in diaper required extra capital investments - led to sharp drop in machine performance

CompetitionBrandedBranded- In Test MarketPrivate Label

P&G PampersUnion Carbide DrydeesWeyerhaeuser

Kimberly Clark KimbiesScott Paper Scott TotsIPCO Hospital Supply

Johnson & JohnsonGeorgia Pacific

Kendall/Colgate Curity

Procter & Gamble 4 business areas Laundry and Cleaning Products: detergents, soaps, fabric softeners, cleaners and cleansers Personal Care Products: bar soaps, toothpastes, mouthwash, deodorants, shampoos, paper tissue products and disposable diapers Food Products: shortenings, oils, cake mixes, peanut butter, potato chips and coffee Other products Operations concentrated in Europe, Great Britain, Canada and parts of Latin America, Asia and Africa Pampers was the single largest P&G brand in paper Products division and enjoyed high profitability Introduced a large no of varieties in the diaper line and constant changes were made to suit the market Diapers were marketed aggressively and sold by 400 person strong sales forceKimberly Clark 3 business lines U.S. consumer and Services Products: Kleenex, bathroom tissue, table napkins, kotex sanitary pads, kimbies, Teri towels etc U.S. paper and forest products: communication papers, business papers, industrial and specialty products, softwood and hardwood lumber Operations outside the United States: overseas production and sale of the same consumer products sold in U.S. Kimbies was the companys single largest investment program Achived 85% national distribution in quick time Manufactured in 5 plants Sourced fluff pulp and other key diaper components from suppliersJohnson & Johnson 3 business lines Health Care: prescription and nonprescription drugs, diagnostic, therapeutic, contraceptive products, surgical dressings etc Industrial and other: industrial tapes, adhesives, textiles, paper products and other items sold primarily to the apparel, textile, health care, agricultural food etc International: international sales of the products mentioned above Dominant producer of nonfood baby products Subsidiary Chicopee Manufacturing Company made Chux and Chix disposable diapers Chux and Chicx phased out by the introduction of Johnsons Disposable DiapersUnion Carbide 6 business lines Chemical: petrochemicals Plastics: thermoplastics, vinyl plastics, polystyrene etc Gases and related products: oxygen, nitrogen, argon, acetylene etc Metals and Carbons: ferroalloys, special alloys, uranium ores, industrial carbon products etc Consumer and related products: Eveready batteries, flashlights, insect repellents etc International: above products internationally Disposable diapers Drydees Carbide manufactured the individual layers of Diapers on its ownColgate-Palmolive (Kendall) 5 business lines Consumer Laundry and Cleaning Products: laundry detergents, dishwashing detergents etc Personal care and Cosmetics: toothpaste, bar soaps, hair products, shaving creams, skin creams etc Other consumer products: plastic bag and food wraps, cloth and disposable diapers etc Professional Products: surgical dressings and packs, obstetrical pads and underpads etc Industrial and Institutional: woven and non-woven fabrics, specialty cotton, rayon products etc 2 lines of disposable diapers: Curity and Curity Tape-TabOther Competitors Scott Paper Weyerhaeuser