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    The Disposable Diaper Industry

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    Mike Cage
    The disposable diaper industry in 1974 had major players like Procter & Gamble, Kimberly Clark, and Johnson & Johnson. Disposable diapers were a new product introduced in the 1960s to replace reusable cloth diapers. They were made from absorbent materials sandwiched between waterproof plastic layers. Major companies invested heavily in R&D and manufacturing facilities to produce new diaper varieties and improve production speeds. The disposable diaper market was highly competitive but also experienced steady growth throughout the 1970s.

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    The Disposable Diaper Industry

    Uploaded by

    Mike Cage
    517 views6 pages
    The disposable diaper industry in 1974 had major players like Procter & Gamble, Kimberly Clark, and Johnson & Johnson. Disposable diapers were a new product introduced in the 1960s to replace reusable cloth diapers. They were made from absorbent materials sandwiched between waterproof plastic layers. Major companies invested heavily in R&D and manufacturing facilities to produce new diaper varieties and improve production speeds. The disposable diaper market was highly competitive but also experienced steady growth throughout the 1970s.

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    The disposable diaper industry in 1974 had major players like Procter & Gamble, Kimberly Clark, and Johnson & Johnson. Disposable diapers were a new product introduced in the 1960s to replace reusable cloth diapers. They were made from absorbent materials sandwiched between waterproof plastic layers. Major companies invested heavily in R&D and manufacturing facilities to produce new diaper varieties and improve production speeds. The disposable diaper market was highly competitive but also experienced steady growth throughout the 1970s.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    517 views6 pages

    The Disposable Diaper Industry

    Uploaded by

    Mike Cage
    The disposable diaper industry in 1974 had major players like Procter & Gamble, Kimberly Clark, and Johnson & Johnson. Disposable diapers were a new product introduced in the 1960s to replace reusable cloth diapers. They were made from absorbent materials sandwiched between waterproof plastic layers. Major companies invested heavily in R&D and manufacturing facilities to produce new diaper varieties and improve production speeds. The disposable diaper market was highly competitive but also experienced steady growth throughout the 1970s.

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    The disposable diaper industry

    1. Barriers to entry
    a. High Cost for machines/setup cost
    b. Competition
    c. Incumbent advantage high r&d, distribution, masss shipping, low
    advertising ( offer retailer low allowance), customer loyalty
    d. Economic of scale

    Why do you want to enter?


    Return, Growth and Risk

    Barrier for entry is high since there are a lot of barrier


    Economic of scope using the same channel, they can deliver more product

    If selling another product it will destroy the company? Why


    Differentiation more margin (why not product differentiation?)
    Cost leadership low margin
    Why no price war in express mail? When should we go for price war
    Why P&G follow other companys product?

    The Disposable Diaper Industry in 1974

    Disposable Diaper Industry 1974

    Estimated sales of $370m 1973


    Major players Procter & Gamble, Kimberly Clark, Colgate-Palmolives
    subsidiary Kendall, Johnson & Johnson, Union Carbide, Scott Paper etc.

    History

    Prior to 1966,reusable diapers were the most used form of diapers


    P&G led the growth of Disposable Diaper Industry through the acquisition of
    the Chairman Paper Company in 1957
    Pampers by P&G was the first successful disposable Diaper
    Each of the companies were using different technology to develop diapers
    Scott Paper -> Two piece principle, Kimberly Clark fluff pulp technology
    Though a lot of firms got into the disposable diaper industry, due to explosive
    growth many of the firms put an end to some of its products and some of the

    firms like Borden, Chicopee had exited the industry all together after
    sustaining considerable losses

    Product Disposable Diapers

    One-piece triangular or rectangular pads with three layers


    Outer layer: water proof plastic film, Middle layer: highly absorbent,
    cellulose based filler material, Inner layer: hydrophobic layer next to the baby

    Variety of Prodcucts
    Diaper Variety
    Newborn
    Daytime
    Overnight
    Toddler
    Toddler Overnight

    Baby Size
    Up to 11 or 12 pounds
    From 12 to 22 pounds
    From 12 to 22 pounds with extra
    absorption capacity
    Over 22 or 23 pounds
    Over 20 pounds with extra absorption
    capacity

    The market standing of a Diaper Brand was based on performance. Any


    diaper which performed poorly lost market position

    Demand

    15-20 billion diapers per year US market; grew rapidly after introduction of
    pampers
    Cost was not a determining factor and parents selected diapers based only on
    performance
    Factors influencing the growth of the industry
    o Increasing number of working mothers
    o Better education and decision to postpone having children
    o Improvement in quality of disposable diapers
    o Better advertisements reaching out to more people
    Further growth was expected. Growth a function of forecast births, disposable
    diaper penetration and the number of diapers consumed per baby
    Increase in number of women of child bearing age to offset the declining
    birthrate
    Forecasted penetration of 70-75% of diaper changes by 1980
    Usage rate ambiguous- depended on the future product improvements that
    might make diaper industry more absorbent

    Distribution

    Sales through supermarkets, drugstores and mass merchandisers


    Gross margin of 10 to 28% of retail selling price, with a median of around 18
    20%

    Represented 63% of the sales and 50% of gross profit of baby care products
    in supermarkets
    Retailers allocated significant shelf space and carried two or more branded
    diapers
    Retailers looked for aggressive support from the manufacturer in the form of
    sampling programs, consumer advertising and promotional allowances
    Brokers were used to sell the product and some firms had their own sales
    force

    Marketing

    Complex and involved a variety of vehicles


    o Extensive sampling through hospitals
    o Couponing
    o Consumer advertising
    o Test marketing

    Manufacturing
    The sequence of the manufacturing process can be described as below

    Rolls of
    fluff fed
    to
    hammer
    mill

    Chop
    pulp in
    separate
    room

    Loosely
    formed
    batt
    carried to
    diaper
    making
    machine

    Cut into
    sections
    and
    laminate
    to plastic
    outer
    sheet

    Attach
    inner
    liner and
    adhesive
    tabs

    Diapers
    folder
    counted
    and
    packaged

    Diaper Machine Considerations

    Operations
    o Staffed by 4 complete crews
    o Operated 80% of the week at the rate of 400 diapers per minute
    o Speed dependent on engineering improvements and complexity of
    diaper
    o Rejects and scraps have significant cost impact
    o Time for learning process and improving efficiency
    Procurement
    o Lead time of 12-18 months
    o Much costly and major proprietary modifications for speed and
    specifications
    o Complete line setup cost - $2 million to $4 million
    o Three to four machines per plant

    Other considerations

    Rising prices for fluff pulp in 1974


    Fluff pulp and liner generally purchased, sometimes integrated
    Transportation costs significant, benefits of scale

    Research and Development

    High investments Product improvement and Manufacturing process


    improvement
    Significant changes in diaper required extra capital investments - led to
    sharp drop in machine performance

    Competition
    Branded
    P&G Pampers
    Kimberly Clark Kimbies
    Johnson & Johnson
    Kendall/Colgate Curity

    Branded- In Test
    Market
    Union Carbide Drydees
    Scott Paper Scott Tots

    Private Label
    Weyerhaeuser
    IPCO Hospital Supply
    Georgia Pacific

    Procter & Gamble

    4 business areas
    o Laundry and Cleaning Products: detergents, soaps, fabric softeners,
    cleaners and cleansers
    o Personal Care Products: bar soaps, toothpastes, mouthwash,
    deodorants, shampoos, paper tissue products and disposable diapers
    o Food Products: shortenings, oils, cake mixes, peanut butter, potato
    chips and coffee
    o Other products
    Operations concentrated in Europe, Great Britain, Canada and parts of Latin
    America, Asia and Africa
    Pampers was the single largest P&G brand in paper Products division and
    enjoyed high profitability
    Introduced a large no of varieties in the diaper line and constant changes
    were made to suit the market
    Diapers were marketed aggressively and sold by 400 person strong sales
    force

    Kimberly Clark

    3 business lines
    o U.S. consumer and Services Products: Kleenex, bathroom tissue, table
    napkins, kotex sanitary pads, kimbies, Teri towels etc
    o U.S. paper and forest products: communication papers, business
    papers, industrial and specialty products, softwood and hardwood
    lumber
    o Operations outside the United States: overseas production and sale of
    the same consumer products sold in U.S.
    Kimbies was the companys single largest investment program
    Achived 85% national distribution in quick time
    Manufactured in 5 plants
    Sourced fluff pulp and other key diaper components from suppliers

    Johnson & Johnson

    3 business lines

    Health Care: prescription and nonprescription drugs, diagnostic,


    therapeutic, contraceptive products, surgical dressings etc
    o Industrial and other: industrial tapes, adhesives, textiles, paper
    products and other items sold primarily to the apparel, textile, health
    care, agricultural food etc
    o International: international sales of the products mentioned above
    Dominant producer of nonfood baby products
    Subsidiary Chicopee Manufacturing Company made Chux and Chix
    disposable diapers
    Chux and Chicx phased out by the introduction of Johnsons Disposable
    Diapers
    o

    Union Carbide

    6 business lines
    o Chemical: petrochemicals
    o Plastics: thermoplastics, vinyl plastics, polystyrene etc
    o Gases and related products: oxygen, nitrogen, argon, acetylene etc
    o Metals and Carbons: ferroalloys, special alloys, uranium ores, industrial
    carbon products etc
    o Consumer and related products: Eveready batteries, flashlights, insect
    repellents etc
    o International: above products internationally
    Disposable diapers Drydees
    Carbide manufactured the individual layers of Diapers on its own

    Colgate-Palmolive (Kendall)

    5 business lines
    o Consumer Laundry and Cleaning Products: laundry detergents,
    dishwashing detergents etc
    o Personal care and Cosmetics: toothpaste, bar soaps, hair products,
    shaving creams, skin creams etc
    o Other consumer products: plastic bag and food wraps, cloth and
    disposable diapers etc
    o Professional Products: surgical dressings and packs, obstetrical pads
    and underpads etc
    o Industrial and Institutional: woven and non-woven fabrics, specialty
    cotton, rayon products etc
    2 lines of disposable diapers: Curity and Curity Tape-Tab

    Other Competitors

    Scott Paper
    Weyerhaeuser

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