The Disposable Diaper

Industry in 1974
Uttama Hande PGP/24/487
Yamini Garg PGP/24/489
Karu Vysali PGP/24/451
Rahul Garg PGP/24/464
Kartik Narayan PGP/24/467
 • choice to produce raw materials
• Product differentiation
• High product development and manufacturing
costs and timeline

Power of
Suppliers -
Medium

• Capital Intensive –
setup, manufacturing Threat of
(50%), transportation New
P&G : Power of • Price sensitivity
• R&D capability and Entrants - Porter 5 Buyers – • Low switching costs
investments Low High
• Economies of scale Forces

• High fixed costs

• Cloth diapers Threat of Competitive • Low product
inconvenient Substitutes - Rivalry – differentiation
• Reduced prices of Low High • Aggressive marketing
disposable diapers over • High price wars
the years
 P&G : SWOT Analysis

Strength Weaknesses
1. Patented Product leading to market entry delay for
competitors
1.High Cost (Exhibit A1)
2.Highest market share
2.Aggressive Competitors in product development
3.Higher brand recognition and preference by and pricing
consumers in Pampers
4.Aggressive Marketing & Advertising (Exhibit 3)
5.Strong distribution network (Exhibit 2)
6. Highest manufacturing capacity amongst
competitors

Opportunity Threat
1.Price wars with competitors
1.Regular innovations in the product to maintain
customers high involvement 2.Price sensitive product, any small markup can hurt
the image of the product and will lose the support of
2.Innovative ways to connect with both working and mothers
non-working mothers
3.Low switching costs
Entry Barrier for Union Carbide
and Johnson and Johnson
• For companies like Union Carbide who doesn’t have any share in consumer products will face
competition from other market players, changing customer mindset is difficult as they were not in
consumer products.
• With UC and J&J being late entrants P&G would be having first mover advantages like high market
share, consumer brand loyalty, well established product which will be difficult to achieve.
• For J&J Patent action by P&G acted as a barrier for entry and it also has only limited regional
presence.
• Difficult to achieve economies of scale
• Learning curve involved in the production process which will take time to achieve higher efficiencies
of production and P&G has already mastered production with producing maximum of 400/min.
• Roping in premier hospitals and extreme test marketing and their high marketing budget in
establishing P&G as national brand giving these new companies high competition.
• P&G was the only player which could take benefit of full-carload and even trainload shipments
 P&G Cost Advantage
Percentage
Dollars per unit of total Advantage of P &G
Raw Materials

0.006 15.00%
Fluff pulp Pulp directly from other vendors like Buckeye Cellulose Yearly Production of
diapers per plant 62,89,92,000
Coversheet 0.005 12.50%    
0.001 2.50% Ouput rate of
Backing Sheet machines 375
Packaging 0.003 7.50% Machine Cost 1200000

0.003 7.50% Building cost 1800000

Manufacturing labour

Depreciaton and Maintenance 0.001 2.50% Total Investment 3000000

Utilities 0.001 2.50% Total Fixed Cost 3000000

Total Manufacturing cost 0.02 50.00% Depreciation p.a. 6,28,992.000

0.004 10.00% to capability of providing full-carload & trainload and reduced Utilities 6,28,992.000
Freight transportation cost
Years for investment
Savings from economies of scale and advertising and also 400
0.006 15.00% depreciation. 4.77
salesman who were selling other paper products were selling
SGA pampers

PBT 0.001 25.00%

100.00
0.04
Selling Price %
P&G has cost advantage of 40% on sale price
 Competitive Advantages of P&G
Manufacturing & Distribution The best way for P&G to defend against entry is to
• P&G is the largest manufacturer with 80+ machines over 4 plants. focus on its competitive advantages
• P&G has highest machine output rate of 350-400 diapers per
minute resulting in annual sales of $5.5-6 million per machine,
Utilize the
highest in the industry Spend extensively on Utilize the existing
Economies of Scale
• P&G is also successful in minimizing transportation costs through R&D umbrella effect
to reduce prices
regional plants & having full transportation load

Research & Development

• P&G spends heavily on R&D
Company R&D Expenditure
1 Develop new products and patent them

P&G $115.80 million

Maintain healthy long-term relations with
Kimberly-Clark $12.70 million Entry 2 distributors
Johnson & Johnson $70.00 million Deterring
Strategies 3 Improve Trade Promotional Allowances to Retailers

Marketing
4 Following Predatory Pricing by operating on low margins
• The Brand Umbrella of P&G gives it a great advantage as other
competitors do not have that advantage as their respective
subsidiaries produce the product.
• P&G went for aggressive marketing by using premiums and
cents-off deals
 Possible Entry Strategy for J&J and Union Carbide

J&J :
 Should leverage their dominance in the non-food baby care products in order to market their disposable diapers
 Provide samples or coupons on purchase of other baby products sold by them. Bundling can also be done of a combination of disposable
diapers with various baby care products for which J&J is known for
 The penetration into the healthcare business can be leveraged in order to increase product visibility in hospitals and maternity homes
 For increasing profitability, the prices could be increased as the customers value premium quality (which J&J provides) over price. This
will also provide a touch of superiority to J&J’s diapers over competitors

Union Carbide :
 Owing to strong financials, Union carbide can introduce a disposable diaper which is not only superior in quality to P&G’s but also at
lesser price in order to capture market share of Pampers.
 Sales force should be developed to distribute the product in a B2C manner
 Focus should be on building the Union Carbide brand as a consumer goods brand by aggressive marketing of other consumer goods like
Glad Bags and Prestone along with Drydees

Both :
 Aggressive advertising and promotion focusing on establishing their products as being superior quality.
 Negotiating better visibility by retailers in exchange for bigger promotional allowances as compared to P&G
 Combine their financial power (Union Carbide) and advantageous brand positioning (J&J) in a joint venture
 Evolution of Disposable Diaper Industry

 Intense Marketing
 Intense expenditure on Research & Development
 Rise of Private Labels as products & production become more standardized
 Higher segmentation through launch of Premium products, fashion focused brand lines, launch of products for different use cases
 High growth industry will attract major FMCG brands

Shaping the Evolution by P&G

 Use of IP to create differentiation and barriers of entry

 Launch of new product lines to cater to every customer and every use case
 Expansion into international markets to capture global market share
 Use the market share leverage to lockdown suppliers through long term contracts to fuel future expected growth