Kimberly Clark Proctor Gamble Diaper Wars Essay

Competition in the table napkin exertion r periodd on as Kimberly-Clark (KC) strived to stay ahead of its main competitor, Proctor and pretend (P&G). By the end of 1989, KCs Huggies controlled 32% of the securities application per centumthe highest of any single product competing in the nappy grocery. Now set about significant financial constraints, the leader in personal c atomic number 18 products endeavored to do product improvements that would hold mart sh be and outperform Proctor and trys Pampers. External AnalysisOne political force alter KC and the serviette industry is Congress and eleven states introducing legislation taxing, ordinance or inhibitionning the sale of mappingable table napkins. Because fluid diapers were non biodegradable, environmentalists were come to about millions of diapers saturating landfills and possibly contaminating groundwater. Environmentalists lobbied for diapers to be taxed or banned to frustrate further environmental degrad ation. If laws were passed taxing or banning disposable diapers, consumers would toil off buying Huggies and resort back to cloth. Possible legal restrictions severely menace the future of the disposable diaper.A blurb political factor impact Kimberly-Clark and the diaper industry is ease of entry to atomic number 63an and Nipponese trades. incomplete Japan nor European countries imposed political sanctions and foreign regulations preventing KC from incoming their markets. A final example of political/legal forces change the diaper industry and KC is P&G unlawfully monopolizing the diaper market and violating anti-trust laws. In 1989, Pampers (Proctor and jeopardizes premium diaper line) and Luvs (Proctor and Gambles mid(prenominal)-price diapers) together controlled 49% of the diaper market. P&Gs violation of anti-trust laws could prevent KC from having an equal chance to gain market sh atomic number 18 and every percentage of market share lost would terms KC $6-10 mil lion in profit. Because diapers accounted for 37% of Kimberly-Clarks net income, P&Gs monopolization could significantly impact KCs future.An economic factor poignant Kimberly-Clark and the diaper industry is the increase in disposable income by women running(a) outside their homes. The increase in disposable income allows KC and its competitors to successfully get by disposable diapers at premium prices.thither are several social/ pagan forces affecting KC and the diaper industry, as previously mentioned, there was an increase in consumer activism. Environmentalists and environmentally touch customers expressed concerns over disposable diapers potential health risks for sanitation workers and groundwater pollutants. Also, disposable diapers received harsh criticism for non world biodegradable. Landfills contained approximately 4-5.5 billion pounds of discarded diapersnearly five percent of total volume. Environmentalists were determined to pause further pollution, which see med inevitably detrimental to KC and other diaper manufacturers. some other social/cultural force was an aging population. Fortunately for KC, there is a positive relationship between the number of elderly persons and the need for dissoluteness products. According to statisticians, 31 million matrimony Americans were over age 65 and 10% had incontinence issues. Because Kimberly-Clark has extensive knowledge in producing diapers, feminine products, bathroom paper and other paper products, they could easily create diapers for adults. A 3rd social/cultural force is the extended amount of time children fagged in diapers. The diaper extension led KC to introduce Pull-Ups, which targeted toddlers being potty-trained. Other social/cultural forces include a decrease in family sizing and more than than mothers working outside the home (mentioned above).A expert force affecting Kimberly-Clark and the diaper industry was the introduction of super-thin technology. Super-thin technology was created by using polyacrylate, a powder crystal that absorbs 50 quantify its heaviness in liquid. The introduction of super-thin technology created more shelf space for Huggies and cut shipping costs (more diapers fit in a truck). A second technological factor is industry spending on R&D. P&G and KC spent approximately $110 million every year on Research and Development. As previously mentioned, every percent of market share gained equals $6-10 million in profit. Kimberly-Clark and its competitors worked to create breakthrough inventions that would steal customers absent from Proctor and Gamble.A one-third technological force affecting KC and the diaper industry is patent protection. overdue to heightened competiveness in the industry, P&G and KC took strenuous efforts to protect their technology from competitors. KC and P&G were extremely suspicious of one another and frequently sued over use of proprietary technologies (gains from lawsuits were negligible).Some of the p olitical/legal, economic, social/cultural and technological forces are similar in other parts of the world. For example, a social/cultural force in Japan and Western European countries is the changing mend of women. Like North America, the number of Nipponese and Western European women working outside the home increased. Unlike Western and Japanese women, Southern Europe had few mothers working outside the home. A social/cultural cut back in Japan that is frequent diaper changes. Japanese parents change their children in two ways as often as North Americans. Also, Japanese avoided the use of non-biodegradable plastics.Forces that drive industry competition are flagellum of modern entrants, rivalry among breathing firms, threat of substitute products or services, dicker creator of buyers and bargaining advocate of suppliers. The most grave forces are rivalry among existing firms and threat of virgin entrants. The five forces are discussed separately below.Some factors tha t affect the threat of spic-and-span entrants are product differentiation, enceinte requirements, access to distribution channels and economies of scale. Kimberly-Clark desire to differentiate itself from competitors through extensive publicize. It used coupons, commercials and product placement to prevail on _or_ upon customers that Huggies are the best diapers. It used product placement by demo customers that even baby Elizabeth in Baby Boom wears Huggies diapers. Successful advertising campaigns created a high barrier of entry to natural firms hoping to enter the market. some other factor that prevented modernistic competition from entering the market is high capital requirement. The machines used to produce diapers cost between $2-4 million and were several feet long. spic-and-span firms that lacked capital to purchase machines would automatically be barred from competition. Access to distribution channels also affected the threat of new entrants. Retailers created the ir possess mid-priced/ lower berth market diapers and were often reluctant to give shelf space to competing firms (in the mid/low price element). Retailers ability to earn profit margins on their own products outweighed revenue from firms purchasing shelf space. A final factor that prevented new entrants is economies of scale. Large companies, such as KC and P&G, created similar products and could postulate advantage of existing distribution channels, resources and facilities. Overall, threat of new entrants in loving.Factors affecting rivalry among existing firms include the number of competitors, rate of industry developing, capacity, located costs, product or service characteristics and height of exit barriers. The number of firms competing in the diaper industry is relatively low. P&G and KC are the only firms competing in the premium diaper market and control 81% of market share. Other firms and retailers compete in the lower price segment however, they target a different audience than premium diaper manufacturers. A second factor contributing to rivalry among existing firms is rate of industry growth. Because birthrate is declining, there is little market share to be gained. Therefore, market share cannot be gained unless taken away from competitors. Rivalry among competition is unfavorable.A third factor affecting rivalry is capacity. Kimberly-Clark and its competitors must(prenominal) operate their plants at full capacity to lower unit costs. They also pretend regional plants in multiple locations to reduce transportation costs. Another factor affecting rivalry is the amount of fixed costs. Diapers are expensive to produce, market and sell, as previously mentioned, machines cost between $2-4 million. Height of exit barriers also influences rivalry. strangle barriers are low. Throughout Huggiess existence, many firms have entered and left the diaper market. For example, Johnson & Johnson, Borden, Scott and International Paper all unsuccessfully created diapers.Some factors that contribute to threat of substitute products or services are cloth diapers and two piece diaper systems. Increased environmental concerns led some customers to choose to localise their babies in cloth diapers as opposed to disposable. Initially, cloth diapers were seen as more environmentally friendly do to their reusable nature. Cloth diapers posed a serious threat to disposable diapers until KC and P&G confident(p) customers that cloth was more detrimental to the environment (laundering cloth diapers created ten times more water pollution). Another substitute for disposable diapers is the two-piece diapers created by Fischer-Price and Gerber. Threat of substitute products or services is somewhat unfavorable for firms in the diaper industry. talk terms indicator of buyers was influenced by the buyers ability to integrate backwards, margins from diaper sales and brand-names. Many of the retailers that change Kimberly-Clarks diapers also created t heir own lines sold at lower prices. Another factor contributing to the bargaining power of buyers is the low profit-margins retailers made off diaper sales. Over one-third of KCs revenue came from diaper sales. Brand loyalty decreased the bargaining power of buyers. Parents with young children may only shop at places that sell the kind of diapers their baby wears. If the retailer chooses not to sell diapers, it could lose business. Bargaining power of buyers is unfavorable for the diaper industry.Bargaining power of suppliers is affected by inability to integrate forward and technology. As previously mentioned, super-thin technology was achieved by using polyacrylate. Unfortunately for KC and P&G, only one firm, Cellanese, had a license to make polyacrylate in the United States. Substitutes for polyacrylate were not readily available, so Kimberly-Clark and its competitors were dependent upon a single firm for super-thin technology. Cellanese had significant supplier power over its buyers. It could control price increases and business deals. Although Cellanese could make polyacrylate, they did not have the ability to integrate forward. Cellanese was a chemical firm and diaper issue was not one of its competencies. Inability for supplier to integrate forward is favorable for KC. The bargaining power of suppliers is unfavorable for firms in the diaper industry.When evaluating the external environment, it is important for firms to recognize opportunities and threats. Some opportunities are a large un-served mid-price market, changing demographics and priorities of North American women, Japanese markets, expansion into Southern Europe, aging population and new technology. Threats include Japanese companies consider global expansion, rising environmental concerns, saturated disposable diaper market and declining birthrate. Each opportunity and threats application to Kimberly-Clark is described below.Seventy-five percent of new mothers in the 1980 are working outs ide the home. Families began to value time over money and were more willing to pay premium prices for quality diapers. Also, the decrease in family coat increased the amount of money that could be spent on diapers. This is an opportunity because it allowed KC to successfully sell Huggies at premium prices. A third opportunity for Kimberly-Clark is Japanese markets. Selling Huggies in Japanese markets is an opportunity because they had not reached the same level of maturity as North American markets. Also, as previously mentioned, Japanese babies use twice as many diapers than Americans. The Japanese market was comparable in size to the North American market. elaboration into Southern Europe is an opportunity for growth due to the low insight levels and unsophisticated competitors. In 1989, there was no large European industry leader. KC has the potential to become the leading diaper distributer in Europe if they execute successful marketing campaigns.An aging population is an oppo rtunity for KC to increase its incontinence product sales. Sales for 1990 were estimated to exceed $1 billion due to the increase in people over age 65. In the future, the incontinence market is projected to become more remunerative than diapers. A final opportunity for Kimberly-Clark is new technology. Utilizing and taking advantage of new technology is an opportunity because it allows KC to outperform P&G and resume market share.A threat that affects Kimberly-Clark is Japanese companies consider global expansion. Japanese expanding globally would hurt KC because Japanese diaper technology is old age ahead of North American. Japanese companies, specifically KAO and Unicharm, create biodegradable diapers. Due to recent environmental concerns, KC would lose market share to Japanese companies if they penetrate the North American market. Rising environmental concerns are a threat to Kimberly-Clark because environmentalists feared potential health risks for sanitation workers and gro und water contamination. They were lobbying to ban disposable diapers and pushing for consumers to use cloth diapers instead. Kimberly-Clark could lose customers to environmentally-friendly diapers if they do not create a biodegradable diaper. Another threat to KC is a saturated disposable diaper market. A saturated disposable diaper market is a threat to KC due to little growth in the diaper industry. The only market share to be gained must be taken away from competitors. A final threat to KC and the diaper industry is the declining birthrate. A declining birthrate and decrease in family size is positively related to a decrease in diaper sales.