The document discusses the disposable diaper industry in the United States from the 1960s-1970s. It summarizes that Procter & Gamble dominated the market with over 65% share in 1973 due to investments in research and development, manufacturing efficiencies, and heavy advertising spending. Kimberly-Clark was the main competitor but had higher costs and a later start distributing nationally. The industry grew rapidly as more women worked and diapers became seen as more convenient than cloth.

1. 1 Procter & Gamble Plaza Cincinnati, OH 45202 United States

3. ECONOMIC Early disposable diapers were expensive and so used primarily for travel Advancement in technology and growing penetration countered the lack of economic stimulus

4. SOCIAL Decline in births was offset by no. of women of child bearing age, resulting in increased penetration. Also, increase in no. of working mothers meant additional income which translated to discretionary expenses like disposable vs. cloth diapers (despite being expensive). Mothers were increasingly older and better educated. Families had become more affluent and mobile during this time.

5. TECHNOLOGY Invention of polymers and plastics such as polyethylene and porous rayon Process Reengineering = Sophisticated block-long, continuous-process machine = 400 diapers/min = 5.5c/diaper from 10c/diaper Adoption of fluff pulp instead of paper = greater absorbency for weight Study on hydrophobic materials ( breaking of Water molecules into atoms and better understanding of water’s unique molecular structure)‏ Built-in adhesives by K-C replaced safety pins Advancement in Media technology like Radio, Spot and national TV and growing adoption of these created better marketing opportunities Dramatic Increase in machine speeds was a function of engineering improvements and complexity of diapers High-end diaper forming assembly cost $2-$4 million contributing to barriers for entry

6. Cost did not drive demand Cheaper European-style FAILED Most important factor: CONVENIENCE & QUALITY Market break-through: Quality improvement Heavy advertising (targeted to working moms and mobile families)‏ Early exposure (Used for babies in hospitals)‏ By 1973: Largest product category in baby care. Almost equaling: Paper napkins ($160 M)‏ Paper towels ($470 M)‏ Bathroom tissue ($533 M)‏ Highly Concentrated Market = Stiff Competition = Companies belly up: Borden Scott International Paper Chicopee’s Chux INDUSTRY ANALYSIS

8. Disposable Diaper Market = Huge Opportunity! In 1973 alone… 3.14 million births Each baby needs 55 diapers per week average 2,860 diapers per year 42% penetration of diaperable babies = 3.77 billion diapers (compared to 104 million at 1% penetration in 1966)‏

11. Source: U.S Census Bureau Industry Statistics Sampler Industry NAICS Codes for Sanitary Paper Product Manufacturing 31-33 Manufacturing 322 Paper Manufacturing 3222 Converted Paper Product Manufacturing 322291 Sanitary Paper Product Manufacturing

12. Detail Value Chain Manufacturing 50% of sale price Transportation 10% of sale price R&D Test Market Distribution Supermarkets (7%)‏ Mass Merchants (4%)‏ Fluff pulp Cover Sheet Backing sheet Customer Sampling Coupons

15. INDUSTRY GROWTH

16. P & G Vs. K-C Vs. Industry Performance Through Out 1967-1973

18. Competitive Analysis Market Share of Leading Competitors (1973)‏ Market Share of Leading Competitors (1971-1973)‏ Year 1971 1972 1973 Procter & Gamble 85% 80% 69% Kimberly-Clark 3% 7% 17% Jonson & Johnson Brand - - 2% Other Brands 10% 4% 3% Private Label 3% 9% 9%

19. HERFINDAHL-HIRSCHMAN INDEX An HHI index of 5,144 indicates that the industry is highly concentrated. This largely due to the fact that Procter & Gamble had a dominating market share in 1973. HHI Index - 1973 Companies Total Sales ($)‏ Mkt Share (%)‏ Mkt Share 2 Procter & Gamble 255 69 4761 Kimberly-Clark 62 17 289 Jonson & Johnson Brand 8 2 4 Other Brands 10 3 9 Private Label 35 9 81 HHI Index: 5144

20. High Price Low Price Low Quality High Quality *Size of Bubble is Proportional to Market Share **Price is adjusted to price per 100 Medium Size diapers purchased in lots of 24 to 48 P&G $5.97 92% market share J&J $7.17 Kimberly Clark $5.97 JC Penny $8.43 Kendall $7.04 Sears Prefolded $5.13 Monty-Ward $3.70 Baby Scott $5.30 Parke Davis $8.25 Sears Regular $4.16

21. Competitive Perceptual Map Test National Market Product Performance High Low Key Notes: 1) Parents expressing the highest overall preference for Pampers in the 1974 Consumer Reports was critical for P&G, as parents’ choice in the disposable diaper market was highly performance-sensitive, and a diaper that performed poorly soon lost market position. 2) Pampers, Kimbies (K-C), Johnson’s, and Curity (C-P) were all priced relatively similarly, with Kimbies lowest at $.056 per diaper and Pampers highest at $.06 per diaper in 1974.

22. Perceptual Map High Price Low Price High Quality Low Quality IPCO Kendall / Colgate

25. Diaper Manufacturer Distributor Consumer Raw Material Supplier Diaper Industry Supply Chain

26. Disposable Diaper Manufacturing Process

27. Incumbency advantages accrue at every stage in the value chain R&D Manf Distribution Retailers Consumers

28. P&G Incumbency Advantages: R&D and Consumer Knowledge In 1973, P&G spent much more money on R&D research than the industry standard of at least $10 million annually We see that investment paying off in machine efficiencies as well as a better understanding what consumers want (design, feel, quality)‏

30. P&G Incumbency Advantages: Manufacturing & Distribution Machine Efficiencies: P&G was superior in maximizing machine efficiencies producing over 100/min. more than their closest competitor (350-400/diapers min., compared to K-C’s 250-275/min.)‏ Annual sales rate per machine was $1.5mil higher than their closest competitor Distribution: P&G reached national distribution rollout in (3 yrs), half the time it took K-C (6yrs)‏ Fluff Pulp - Integrated Had more control over one of their highest production costs by bringing it in house, we also presumed it would be cheaper than purchasing from suppliers Mass Shipping: Capitalized on full-carload and trainload shipments

31. Distribution and Marketing

32. P&G Incumbency Advantages: Advertising Advertising dollars spent It costs P&G $.04 in advertising for every $1 in sales, almost 1/3 of K-C’s $.11 for every $1 in sales* Because P&G spent so much on advertising and consumers knew they wanted Pampers going into the store, P&G did not offer many retailer support allowances such as consumer advertising, sampling, and promotions. * Assuming advertising is directly correlated to sales, with other sales variables remaining constant

33. Brand Equity P&G has spent 35.6M on marketing specifically oriented to their Pampers brand. This is about 4 times as much as its closest competitor. 1966 1967 1968 1969 1970 1971 1972 1973 Total P&G 18.5 1348.6 5032.1 618.6 4852 6383.4 8438.2 8927.7 35,619 KC 0 0 51.8 49.7 78.6 307.9 1296 6591.2 8,375

35. Incumbency advantage Quantified

36. VALUE CREATING ACTIVITIES

37. ACTIVITY SYSTEM MAP

38. How economies of scale create a barrier to entry Source; http://www.wikinvest.com/images/d/d5/CYCLEOFFIXEDCOSTS.jpg

39. Scale +learning+loyalty + switching cost advantages Learning economies Brand Loyalty advantages Switching cost Can result in formidable incumbency advantages

41. Kimberly Clark - Value Chain Manufacturing 50% of sale price Transportation 10% of sale price R&D Test Market Distribution Supermarkets (7%)‏ Mass Merchants (4%)‏ Fluff pulp Cover Sheet Backing sheet Customer Sampling Coupons 33% Market Share Ahead Of Schedule Strong Sales force Unique ∆ Shape Own Liner