The Disposable Diaper Industry in 1974

Group 8
Amol (065) | Gagandeep (80) | Jay (90) | Ridhi (105) | Surya J (119)
 Overview
Industry Analysis Market Players
• Largest product category in baby care segment in 1973 with
$554.6 mn
• Industry was performance sensitive and not price sensitive
• Convenience and quality were important P&G
• Market was highly concentrated with stiff competition

Factors for increase in demand K-C J&J

• Increase in number of working mothers
• Older and more educated mothers
• Increasing mobility of affluent families
• Forecast births (Declining)
• No. of women in child-bearing age (Increasing) Union
• Market Trend for disposable diapers – Col-Pal Carbide
Continuous improvement in quality
Heavy advertisement of product
High exposure of product in the hospitals

• Capital intensive manufacturing process
• R&D changes takes toll on efficiency of machines
and thus production output
• P&G has very efficient production process able to
produce 400 diapers/ min
• It is difficult for new entrants to achieve economies
in scale in a short span of time as designing one
requires $2 to $4 Mn
• P&G has already become a nationally popular brand
with huge expenditure on marketing ($ 8.9 Mn
annually)
• P&G ran many marketing campaigns like premium
and cents-off deals, extensive test marketing, etc.
• They also offered variety of diapers
Entry Barriers
• Key component purchases from suppliers create
margin problems and even bulk orders or scale
purchases not help in savings
• Some manufacturers integrated in fluff pulp because
of increasing supply prices, but P&G already has a
division which produces fluff pulp
• Weyerhaeuser, only player fully integrated in fluff
Manufacturing Suppliers pulp, P&G could fulfill requirements partially
Process Integration
Distribution • Regional plants across different locations leading to
Marketing efficient distribution
Networks • Prior relations of P&G with supermarkets enabling
it to leverage on it
• Wide range of product chain (P&G has) allows
easier transportation by making full load trucks
 Cost Advantage of P&G

Efficient production system evident from better

output rate and sales rate per machine
Annual sales rate
Machine output rate
per machine
P&G: 350-400/min
P&G: $5.5-$6.6 mn
Depreciation and maintenance costs
KC: 250-275/min
KC: $4.0-$4.5 mn distributed over larger volume of production

Distributed production
P&G: 4 plants Distribution costs control with distributed
KC: 5 plants production across multiple plants
J&J: 1 plant

Flexibility to adjust profit margins to lower price

vis-à-vis competitor
 P&G’s Defense Strategy
Structural Entry Barriers
Control of Essential Resources: Very little
• Fluff Pulp is integrated into the P&G supply chain
• Fluff Pulp prices are going up & the supply is tight
Economies of Scale: Very High
• Capacity of over 4 times the next biggest competitor
• Market share of over 4 times the next biggest competitor
• Revenue per Machine highest in the industry
• More affordable product
Economies of Scope: High
• Transportation (10% of total cost) is largely reduced
• Able to leverage the P&G brand
Marketing Advantages: High
• Aggressive Marketing Strategies on Consumer media
• Sampling to Hospitals
• Couponing to increase penetration
Conclusion: Capacity expansion is a viable deterrent strategy despite there being some structural barriers
Scope for Entry Deterring Strategies
Limit Pricing: Unviable
• Price not a very big criteria in the purchase decision
• Limit Pricing will only eat away at profits
Predatory Pricing: Unviable
• P&G has a high market share
• Industry subject to many anti-competitive lawsuits
Capacity Expansion: Viable
• Industry is projected to grow at a good pace
• Existing revenue per machine levels can be enhanced
Other Methods
• Patent Infringement Lawsuit delayed entry of J&J
• Retailer marketing through incentivizing exclusive stocks of
P&G
 Entrance Strategy
J&J
Suggested Strategy – Differentiation
• Use the Baby care image and expertise to create a
better consumer appeal
• Price product at a premium and take advantage of the
price insensitivity by offering a better product
• Leverage the sales network of the existing baby care
products
• Use the hospital route to market by using the J&J
brand
• Increase the number of production facilities to reduce
costs
• Spend more in R&D to maintain the differentiation
levels
Union Carbide
Suggested Strategy – Integration
• Expertise in Glad Bags can give some impetus towards
a cost efficient production process
• Supply chain integration (both plastic liners
manufactured in-house) gives cost cutting impetus
• Superior product quality gives an impetus to
differentiation
• Using the Glad Bags distribution network reduces its
costs
• Deep pockets allow it invest in R&D (increasing
chances for differentiation as well as in more
plants(reducing costs)
 Evolution of Industry

• Market is slowly shifting from

performance sensitive to price sensitive 196 196 196 196 197 197 197 197
  6 7 8 9 0 1 2 3 1974 1975 1976 1977 1978 1979 1980
owing to increased number of players
in the market Manufacturer's Sales 10 20 60 90 130 200 280 370 430 492 557 625 696 770 847
Percent Penetration 1 2 7 11 15 22 35 42 47 51 56 61 66 70 75
• Acquiring suitable competitive threats Number of births 3.64 3.56 3.54 3.63 3.74 3.56 3.26 3.14 3.25 3.36 3.47 3.57 3.68 3.79 3.9
to maintain its leadership position may  

help P&G retain the premium pricing Price of diaper(Cents) 5.5

advantage Number of diapers/week/baby 53

• R&D investment may help them Estimates indicating the growth in demand over next years till 1980
maintain an edge in products quality
and demand
Thank you!