The Diaper Wars

Kimberly Clerk Vs. Procter and Gamble

Paper
By

Kenoma E. Agbamu
Masters in Marketing

Kenoma Agbamu

Masters in Marketing

Background

The personal care, as the name suggests, is one of the largest consumer categories and has been present for a very long time, it is made up of several sub categories from liquid & solid detergents, washing powder, deodorants and roll-ons, perfumes, body care cosmetics, baby products, diapers & wipes etc. These sub categories are commonly very complimentary in the roles they play for final consumers, adding specific benefits to the specific personal care needs of the consumer. Products in these categories are largely either premium or mass products. In this review, we will be looking at the diaper sub-category with more focus on the North American Industry and little on the Asian and European markets. This paper will analyze the business developments and market evolutions that have taken place from both the industry and company perspectives. Diapers have been worn throughout human history, they are usually made of cloth or disposable materials. Whereas cloth diapers are composed of layers of fabric such as microfiber and can be washed and reused multiple times, disposable diapers contain absorbent chemicals and are thrown away after use1 The Diaper Evolution The first diaper dates back to the late 19th century and this has seen series of changes overtime. Early Evolutions
1887 1936 1942 1946 1947 1947 1948 1949 1949 1950 1952 Cloth diapers were first mass produced by Maria Allen. Paulistrm develops an absorbent insert made of tissue. First reference of a disposable diaper made by PauliStrm in Sweden. Marion Donovan patents "the boater", a waterproof cover with snaps. George M. Schroder invents the first diaper using nonwoven fabrics. Valerie Hunter Gordon develops a two piece disposable diaper in England. J&J introduces disposable diapers in the United States. Stanley Mason patented the first disposable and pin free diaper. Chicopee introduces CHUX disposable diapers. Paulistrm introduces "roll diapers" made of cellulose wadding. Kendall and Parke-Davis enter the market.

Table 1: The Evolution of Diapers2

The Industry The Emergence of Disposable Diapers Johnson and Johnsons introduced the disposable diaper in America, in 1946; this new innovation was not very successful as consumers still did not get the maximum satisfactions. And however, at this time there were will used to the washable cloth diapers. The industry was also characterized with very unique forces that determined the shape of the market landscape with a number of players. But even though, there we other players in the industry, P&G and Kimberly Clerk revolutionized the diaper industry with their continuous innovations and intense competition.
1 2

www.wikipedia.com http://www.disposablediaper.net/content.asp?3
Kenoma Agbamu Masters in Marketing

Industry Analysis 5 Forces

Bargaining Power of Suppliers Suppliers had medium bargaining power Option to produce their own raw materials Few large manufacturing suppliers, complex machines Volume is very important to supplier Switching costs are high (the machines are finely tuned and it takes years and plenty of money to change) Threats from substitutes High threats from substitutes Other products perform just as well Cloth diapers still have a high penetration High price-performance tradeoffs Threats from new entrants Low Threat from New Entrants Brand identity is extremely important Millions of dollars spent on advertising Shelf space on stores is hard to get Huge Setup costs Economies of scale takes a few years to get things up to speed Access to distribution is extremely important (Volume) Bargaining power of buyers High bargaining power of buyers Brand is extremely important Customers are very sensitive to price Substitutes are readily available Buyers are very informed of products (starting at the hospital and continuing through heavy advertising Competition and Rivalry Low exit barrier Industry is heavily concentrated Large fixed costs Very little diversity of rivals Few product differences all are beginning to offer similar products

Kenoma Agbamu

Masters in Marketing

Company Outlook1
We will take a look at how the different companies had been able to keep up in this highly competitive industry

Procter and Gamble The Beginning of Pampers After the purchase of Charmin (a paper company), by Procter & Gamble, they began their research on disposable diapers in 1956 which led to the later introduction of Pampers in 1961.
Figure 1- Pampers

The introduction of pampers, was the beginning of a technological breakthrough for disposable diapers as it was the first disposable diaper to use a plastic back sheet, coupled with absorbent wadding and a porous rayon sheet facing the babies skin. Pampers was a highly priced product which thus hampered an early national roll. P&G However continued to invest in technology to develop a more cost effective manufacturing process. This, it was able to achieve to a large extent, which then enabled P&G to reintroduce Pampers at a reduced price, and reach national distribution by 1969. P&G also introduced Luv in 1976 as a premium product, and was priced over Pampers. Luv. Luv was now rolled out nationally and thus began to suffer a loss in the premium segment when 2years after, competition responded, thereby loosing market share to Huggies. It took another 6 years until P&G responded when it realized the Middle segment was almost disappearing, they invested in revamping their production technology and repositioned Pampers as a premium product. Procter and Gamble continued to be a market leader in household and personal care products with over $13.3 sales as at 1989, with disposable diapers contributing approximately 17% of P&Gs total North American sales and it maintained its core competence in R&D, they were very good at churning their products to become superior consumer products. Most of P&G product dominated their markets. During the late 80s P&G began to further diversify to strengthen its business portfolio. It acquired Richardson Vicks, G.D Searle, Bain de Soleil, and Sundor Group.

http://annualreport.pg.com/annualreport2009/financials/mda-overview.shtml http://www.encyclopedia.com/doc/1G2-3498000093.html
Kenoma Agbamu Masters in Marketing

SWOT ANALYSIS P&G

Opportunities Changing demographics & priorities of western women women started going to work Working mothers valued convenience Increased demand for a new version of an old product New technological inventions that can help to lower costs Threats Emergence of multiple competitors Industry was shifting from a monopoly to near perfect competition Delayed child birth as more women started going to work Technology was accessible to everyone

Strengths Weaknesses Very good brand name R&D was a lot focused on Experienced in R& D improving existing products Wholly owned subsidiary that produced fluff pulp International presence Market power through its size Operated 4 regional manufacturing plants (helping to defray freight costs) Dominant player in the overall household & personal care category Presence in international Markets (SO) Strategic Issues (WO) P&G partnered with gift pax Investing in 5 more and hospital kit providers manufacturing plants Pampers provided different versions of diapers such as new born, daytime, overnight etc Increased expenditure on R&D Switched from creped tissue to fluff pulp & changed the liner from rayon to a mixture of rayon and polyester. (ST) Strategic Issues (WT) Innovative use of Committed investments advertising (discount into diversification of coupons and sampling) products Expand into new Acquisitions of other international markets personal care Create a new segment companies (Vicks, from the old who suffered Clearasil, G.D Searle) incontinence

Kenoma Agbamu

Masters in Marketing

Kimberly- Clerk1
The Rise and fall of Kimbies Eight year after P&G introduced pampers in 1961, KimberlyClerk, whom have been working and researching the disposable diapers for years introduced the Kimbies brand in 1968. This brand featured lots of innovative qualities thats became industry standards, they were made with materials that gave them great competitive cost advantage. However and Kimbies was priced at par with
Figure 2 - Kimbies 1969

Pampers.

Despite these innovations, consumers still had complains of ineffectiveness, for instance when the child sits. Kimberly-Clerk reinvested its profits into further product development as from research it was clear that consumers were very sensitive to the quality of the product and the satisfaction they received from it. In 1978 after upgrading its production facility, Kimberly-Clark later introduced Huggies; this was another response to P&Gs entrance into the Premium segment with Luv, and a replacement for Kimbies which was now produced for the middle segment. Kimbies was gradually faced out of the market. While Huggies was very successful and its sales grew rapidly, as consumers were able to see the benefits very clearly. Huggies grew its market share from 7% in 1980 to 32 % in 1989.
Strengths (S) Weaknesses (W)

SWOT ANALYSIS Kimberly-Clark

Opportunities (O) Changing demographics & priorities of western women women started going to work Working mothers valued convenience Increased demand New technologies Threats (T) Multiple competitors Declining birth rate Technology was accessible to everyone Government regulations

Good Brand Name No presence in the Japanese Market Innovation Second to P&G in market Production of own raw entry materials International presence Experienced in the personal care category Good distribution channel (SO) Strategic Issues (WO) Compete with the market Monitored competition leader by introducing closely and respond quickly products that match and when they take any surpass their standards innovative move. Increased Investment in R&D Backward integration, to produce own raw materials (ST) Strategic Issues (WT) Investment in Advertising to Diversification of products build brand loyalty range Enter a new segment for Expand into new markets older consumers who Increase production capacity suffered incontinence

http://www.kimberly-clark.com/investors/annual_reports.aspx http://www.thefreelibrary.com/Diaper+market+gets+tough:+as+the+two+giants+in+the+diaper+world...-a0102274786
Kenoma Agbamu Masters in Marketing

Final Analysis

Procter and Gamble and Kimberly- Clerk controlled the industry over the last 4 decades, the competed very closely and defined the direction and shape of the landscape amidst other smaller private labels. They competed highly on introductions of new technologies to reduce costs, improving existing products or introducing new ones. Overall innovation has been very key in shaping the diaper industry. Both companies have taken the competition to different markets by being present in International markets and having production plants in different regional locations in Europe and Asia. As most Western demographics evolved towards an ageing population, a new segment was born when P&G first introduced its products for incontinence, for older people Most recently P&G still controls 35% of the Global market share1.

Kenoma Agbamu

Masters in Marketing