ICA_Case 2_The Diaper War: Kimberley-Clark Vs Procter & Gamble

Q1: Think of 1985: how attractive was the NA diaper industry?

Diapers have been a part of human history since a long time. They have evolved from just cloth
diapers to disposable diapers with new technologies. The disposable diaper was invented in
Sweden and was introduced in America by Johnson & Johnson in late 1940s. Since then, many
companies like Kendall and Parke, P&G, K-C, Borden, Scott, International Paper etc.
competed in the US market but many could not sustain beyond early 1970s. Only 2 companies,
Kimberley-Clark (K-C) and Procter & Gamble (P&G) survived in the market and competed to
establish dominance in the market. In the 1980s, the market became highly volatile when K-C
introduced new technology in their production line and that impacted P&G sale greatly. In late
1984, Huggies acquired 30% of market share and P&G started upgrading their products with
comparable features and undergone huge transformation with introduction of Pampers as
premium product. With this, the following analysis using porter’s five forces model gives a
clear picture of North America diaper industry in 1985.

Porter’s Five Forces Explained

Bargaining power of Suppliers: Moderate

• The suppliers have a medium bargaining power as in case of K-C, they have the option
to produce their own raw materials.

• There are only a few large manufacturing suppliers with complex machinery.

• There is high dependence on plastic in the products and with increasing customer
awareness on environmentally friendly products, the supplies for plastic, as a raw
material, may take a hit.

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ICA_Case 2_The Diaper War: Kimberley-Clark Vs Procter & Gamble

Threats from New Entrants: Low

• The threat from new entrants is very low because brand identity is highly important for
the customers.

• Setup cost is very high and economies of scale take a lot of time to speed up.

• Access of distribution is extremely important and it is hard to make a shelf- space on

stores.

• A lot of money is invested in advertisements and R&D to comfort customer’s need.

Bargaining Power of Buyer: Very High

• For the buyers, the brand and quality is extremely important. Huggies’ sales in the year
1985, grew rapidly as consumers discovered the diaper’s superior characteristics.

• Buyers are relatively sensitive to price. They look out for substitutes that are readily
available and have a very low switching cost.

• Buyers are well informed about the Diapers as P&G and K-C roped in hospitals to
spread a word about the product from the start and continued it through heavy
advertisements.

• Thus, in this case of P&G vs Kimberly Clark, the buyers have a very high bargaining
power.

Threats of Substitutes: Very High

• There is high fluctuating market share seen in the last decade.

• There is low differentiation between the products offered.

• The market of North America was being competed mainly by the two companies i.e.,
P&G and K-C.

• Their product innovation and technology advancement leading to much better

production lines made them untouchable in the upper segment market but equally
volatile to substitution among them.

• But in the lower segment, due to low price, private labels had more advantage in that
section of the population as compared to P&G & K-C.

Competition & Rivalry: High

• In early 1980s, with K-C’s new market entry with huggies, P&G struggled to compete
with older technology.

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• Eventually, Intense technological rivalry with both P&G and K-C coming up with
product innovations with improved cost structures and added features.

• P&G introduced new technology in NA earlier in 1986 and became a market leader due
to access of technology in Japan, where K-C didn't have a presence in.

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