A deep Insight into the development of the Diaper industry in the North American Market (Case Study on P&G Vs Kimberly Clark) - A paper presented by Kenoma Agbamu

1. The Diaper Wars
Kimberly Clerk
Vs.
Procter and Gamble
Paper
By
Kenoma E. Agbamu
Masters in Marketing
Kenoma Agbamu Masters in Marketing

2. 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 Cloth diapers were first mass produced by Maria Allen.
1936 Paulistróm develops an absorbent insert made of tissue.
1942 First reference of a disposable diaper made by PauliStróm in Sweden.
1946 Marion Donovan patents "the boater", a waterproof cover with snaps.
1947 George M. Schroder invents the first diaper using nonwoven fabrics.
1947 Valerie Hunter Gordon develops a two piece disposable diaper in England.
1948 J&J introduces disposable diapers in the United States.
1949 Stanley Mason patented the first disposable and pin free diaper.
1949 Chicopee introduces CHUX disposable diapers.
1950 Paulistróm introduces "roll diapers" made of cellulose wadding.
1952 Kendall and Parke-Davis enter the market.
Table 1: The Evolution of Diapers2
The Industry
The Emergence of Disposable Diapers
Johnson and Johnson’s 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
www.wikipedia.com
2
http://www.disposablediaper.net/content.asp?3
Kenoma Agbamu Masters in Marketing

3. 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

4. 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&G’s 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 80’s P&G began to further diversify to strengthen its business portfolio. It acquired
Richardson Vicks, G.D Searle, Bain de Soleil, and Sundor Group.
1
http://annualreport.pg.com/annualreport2009/financials/mda-overview.shtml
http://www.encyclopedia.com/doc/1G2-3498000093.html
Kenoma Agbamu Masters in Marketing

5. Strengths Weaknesses
• Very good brand name • R&D was a lot focused on
• Experienced in R& D improving existing
• Wholly owned subsidiary products
that produced fluff pulp • International presence
• Market power through its
size
SWOT ANALYSIS • Operated 4 regional
P&G manufacturing plants
(helping to defray freight
costs)
• Dominant player in the
overall household &
personal care category
• Presence in international
Markets
Opportunities (SO) Strategic Issues (WO)
• Changing demographics  P&G partnered with gift pax  Investing in 5 more
& priorities of western and hospital kit providers manufacturing plants
women – women started  Pampers provided different
going to work versions of diapers such as
• Working mothers valued new born, daytime,
convenience overnight etc
• Increased demand for a  Increased expenditure on
new version of an old R&D
product  Switched from creped
• New technological tissue to fluff pulp &
inventions that can help changed the liner from
to lower costs rayon to a mixture of rayon
and polyester.
Threats (ST) Strategic Issues (WT)
• Emergence of multiple  Innovative use of  Committed investments
competitors advertising (discount into diversification of
• Industry was shifting coupons and sampling) products
from a monopoly to near  Expand into new  Acquisitions of other
perfect competition international markets personal care
• Delayed child birth as  Create a new segment companies (Vicks,
more women started from the old who suffered Clearasil, G.D Searle)
going to work incontinence
• Technology was
accessible to everyone
Kenoma Agbamu Masters in Marketing

6. Kimberly- Clerk1
The Rise and fall of Kimbies
Eight year after P&G introduced pampers in 1961, Kimberly–Clerk, whom have
been working and researching the disposable diapers for years introduced the
“Kimbies” brand in 1968. This brand featured lots of innovative qualities that’s
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&G’s 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)
• Good Brand Name • No presence in the Japanese
• Innovation Market
SWOT ANALYSIS • Production of own raw • Second to P&G in market
entry
Kimberly-Clark •
materials
Experienced in the personal • International presence
care category
• Good distribution channel
Opportunities (O) (SO) Strategic Issues (WO)
•
Changing demographics  Compete with the market  Monitored competition
& priorities of western leader by introducing closely and respond quickly
women – women started products that match and when they take any
going to work surpass their standards innovative move.
• Working mothers valued  Increased Investment in
convenience R&D
• Increased demand  Backward integration, to
• New technologies produce own raw materials
Threats (T) (ST) Strategic Issues (WT)
• Multiple competitors  Investment in Advertising to  Diversification of products
• Declining birth rate build brand loyalty range
• Technology was  Enter a new segment for  Expand into new markets
accessible to everyone older consumers who  Increase production capacity
• Government regulations suffered incontinence
1
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

7. 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