THE DISPOSABLE

DIAPER
INDUSTRY IN
1974
Submitted By : Group 11
WHAT ARE THE BARRIERS TO ENTRY FACING FIRMS SUCH AS UNION CARBIDE
AND JOHNSON AND JOHNSON (J&J) IN ACHIEVING NATIONAL BRAND STATUS?

STRUCTURAL BARRIERS

Economies of scale and Marketing advantages of

Control of essential incumbency
scope
resources by incumbent
• Threatening for patent action : P&G • High marketing($8.9 mn) and
threatened patent action against J&J
• The diaper industry requires huge
investment into plants and advertising expenditure( 4 times that
and initiated patent infringement of nearest rival ) by P&G.
against Weyerhaeuser machinery both of which require
high capital and R&D investment. • Premium and cent off deal offerings.
• R&D changes makes the • High shelf space coverage in
• Manufacturing require multiple manufacturing process in efficient. supermarkets.
input resources and established
players source resources from • Sampling in hospitals, locking the
various suppliers and thus no player premier kit firm and Gift Pax
exercise control
WHAT ARE THE BARRIERS TO ENTRY FACING FIRMS
SUCH AS UNION CARBIDE AND JOHNSON AND JOHNSON
(J&J) IN ACHIEVING NATIONAL BRAND STATUS?

STRATEGIC BARRIERS

Limit pricing (Low) Predatory Pricing (Low) Capacity Expansion (High)

Limit pricing does not exist as
market share is determined by
the quality of the product rather
than price
Market is dominated by quality
conscious customers so players
do not engage in price wars.
Industry is in growing phase so
industry players are inclined in
expanding their capacity to
achieve manufacturing and
distribution network efficiency.
Cost Advantage for P&G
  P&G K-C
Particulars Cost per unit Cost per unit
Raw Materials    
Fluff Pulp 0.006 0.006
Cover sheet 0.005 0.005
Backing sheet 0.001 0.001
Packaging 0.003 0.003
Manufacturing Labour 0.003 0.003
Dep & Maintenance 0.001 0.0014
Utilities 0.001 0.0014
Total Manufacturing Costs 0.02 0.0209
Freight 0.004 0.004
S&G,Admin Expenses 0.006 0.006
Pre tax profit 0.01 0.0091
Selling Price (manufacturers) 0.04 0.04
Profit Margin 25% 23%
Yearly Production of diapers at 1 plant (4
machines) 630,720,000 441,504,000
     
Ouput rate of machines 350-400/min 250-275/min
Total Investment 3000000 3000000
Total Fixed Cost 1257984 1257984
Depreciation p.a. 628992 628992
Utilities 628992 628992
No of years to depreciate the investment 4.77 4.77
HOW CAN P&G BEST DEFEND ITSELF AGAINST ENTRY? HOW
MIGHT IT DETER ENTRY OR "PERSUADE” FIRMS THAT HAVE
ENTERED TO MODIFY THEIR PLANS?

 Capacity Expansion :- P&G should expand its capacity as

industry is expected to grow at high rate. (Existing players)
 Excess capacity would threaten the new entrants due to the fear
of lower price post entry.
 Incentivize retailers so that they do not look for alternative brands
to neutralize P&G power. (Existing player)
 Strategic bundling of product offerings may help deter new
entrants
WHAT SHOULD CARBIDE AND J&J DO? HOW
SHOULD THEY GO ABOUT ENTERING THIS
INDUSTRY?
Johnson & Johnson
• Explore alliances with new entrants to grow
inorganically and capture the market
• Capital expenditure should be turned to increasing
production scale which will lead to lowering of prices
due to economies of scale
• Sales force of other consumer related divisions
especially healthcare and baby products should be
pulled up for marketing disposable diapers
• J&J should associate with hospitals to prescribe
disposable diapers along with other baby products
• Expensive inner line products should outsourced to
reduce costs till the time J&J is completely comfortable
in economically producing the products from it
Union Carbide
• Production as a private label player would be an easier
way to enter the market
• Brand building into a consumer healthcare company will
be important if it wants to play as a dominant competitor
• The company can indulge in aggressive pricing
equivalent to P&G owing to its strong financials to
capture market
• It should start developing a dedicated sales force which
could work in a B-C environment not the otherwise B-B
markets
• Owing to huge financial strength of the company it must
enter the market with a type of alliance
HOW DO YOU EXPECT THIS INDUSTRY
TO EVOLVE?
Demand 1973 1974 1975 1976 1977 1978 1979 1980
No of Births (In Millions) 3.14 3.14 3.14 3.14 3.14 3.44 3.74 3.9
Penetration rate 42% 47% 51% 56% 61% 66% 70% 75%
Usage Rate
(diapers/week) 55 52.3 49.6 47.2 44.8 42.6 40.4 38.4
Market Size (in Millions) 3772 3985 4168 4323 4451 4992 5526 5842

Growth rate : 6.45% P&G can take following measures:-

Assumptions:-
1. Usage rate decreases by 5% yoy due to
technology advancement.
2. Penetration rate is increasing by 4.71%
3. The birth rate is increasing after 1977 by .
3 MN per year
1. Invest in R&D to develop better products using
advanced technology. Patenting can delay entry of
competitors in product segments
2. Economies of scale can be used to decrease price and
aggressive discounts can be pursued in geographies with
fierce competition
3. Explore new geographies where there is market to be
captured