Impact of the Supply and Demand Conditions on Johnson and Johnson - Case Study Example

Case Study: Johnson & Johnson Company Introduction Johnson & Johnson (J&J) is a multinational company with its headquarters based in New Brunswick, New Jersey in the United States (JNJ, 2015a). The company incorporation was an initiation in 1886 by three brothers R. W. Johnson, J. W. Johnson and E. M. Johnson (Johnson &Johnson, 2015b). J&J operates in over 60 countries with approximately 274 outlets and with over 100,000 employees in all those states (Johnson & Johnson, 2013d). The firm is eminent for its manufacture of health care products, presently in masses of three segments. These sections embrace the consumer section, which deals with various products like the baby products trading under the Johnsons brand, oral care products with brand Listerine, health products for women like the sanitary pads, which includes carefree and stay free among so many other products (JNJ, 2015a). Hence, managing to command demand in the market for its diversification, a strategy that is not common with numerous firms especially the entrants for they only rely on one line. The company further produces pharmaceutical product in which it is ranked sixth globally in terms of market share (Johnson & Johnson, 2015b). This segment mainly deals with several products ranging from Metabolic drugs, Cardiovascular, drugs for immunity and so many more (JNJ, 2015). The last category of products under J&J is the medical devices section that majors in equipment to treat various health conditions like trauma, cardiovascular complications, metabolic diseases among others (JNJ, 2015a). Impact of the supply and demand conditions on J&J in recent years The concept of demand and supply denotes the ability of the consumer to pay for a products and the ability of the firm to provide those product to the consumer in order to meet the demand (Marshall, 2013). Over the recent years, J&J has experienced a lot of growth especially in the Pharmaceutical segment. This is largely due to the high demand for the pharmaceutical products (Johnson & Johnson, 2013d). To mitigate this demand the firm launched an Over the Counter (OTC) program, in a bid to sustain the increased demand for these products (Johnson & Johnson, 2013d). This increase in demand automatically affects the price by pushing these prices a bit higher, which consequently increased the income for the segment (Johnson & Johnson, 2013d). Similarly, the company has been keen to improve its supply chain sector where they focus on decentralizing their supply operations in order to avail the products to customers at all time (Johnson & Johnson, 2011c). Price elasticity of demand for the products that the J&J will sell Price elasticity of demand refers to the change in prices, because of the change in demand of a particular product (Marshall, 2013). Despite stipulating earlier that the prices of J&J products increase as the demand increases, this is not quite normal if we were to follow the demand curve theory. The alteration in price is quite insignificant that yields from health regulations especially in the United States that limits the price of health care product (Johnson & Johnson, 2013d). This is mainly so due to the Patient Protection and Affordable care Act that came to existence in2010, coupled with various other precepts in diverse states country in a bid to provide affordable health care. Costs of production for the firm According to the J&J (2013d) annual report, the total production costs increased compared to the previous year. This rise in the cost is due to the new projects that the company continuously endeavors in order to ensure reliability to customers. A further aspect that may have caused the rise in the production cost is the firm’s sustainability effort to produce sustainable product and due to the period of adjustment, could have caused the rise in these costs (Johnson & Johnson, 2012). Instability in the world currencies could have similarly attributed to the rising costs. J&J have concentrated their growth and expansion on the basis of research and development by continuously producing new products in the market as well as improving the existing ones (Johnson & Johnson, 2013d). The cost of the research and development therefore has significantly contributed to the overall cost of producing the products. J&J primary competitive advantages J&J has maintained a considerably large market share not only in the U.S market but in the global view as well. Various aspects like their availability everywhere have contributed this trend (Johnson & Johnson, 2013d). This presence has made the firm to be popular in almost all countries globally hence the remarkable revenue generation. The firm also has established a very strong brand such that every customer feels confident when using their product, which is a very strong aspect when it comes to marketing (Johnson & Johnson, 2013d). Additionally, the firm has a very strong supply chain management, which has made them a reliable partner in health care products since their products are readily available (Johnson & Johnson, 2013d). Their innovation levels are very high due the presence of a research and development center, which always ensures that they are improving the products or enrolling new ones according to the customers’ needs. Entry barriers for J&J in their industry In any form of business, barriers are inevitable which will always emerge from time to time. J&J therefore is not an exception especially in health care where strict regulations are compulsory due to the nature of the industry. The health care industry is a very sensitive industry and therefore many nations where the firm operates normally impose high regulations to ensure high product standards especially to new firms entering the market (Johnson & Johnson, 2011c). However J&J have not so much been affected considering the large number of subsidiary firms they have opened in almost all countries globally showing the confidence level many nations have in them (Johnson & Johnson, 2013d). The Johnson brand is very strong and considering they have been in the market for more than a decade and being one of the top ten health care products manufacturers has made their entry quite smooth compared to their competitors in the industry (Johnson & Johnson, 2015b). Substitutes available for the product Substitute products are those products that can serve the same purpose but are not identically the same and hence the consumer can purchase instead of the industry’s product (Hines, 2013). J&J has several competitors in the industry that produces product that customers can use in place of their products. One particular example of such firm is the Abbot Laboratories based in New York, which produces nutritional drugs, which Consumers can use in place of the J&J nutritional products (Abbot, 2015). Similarly, the women carefree or the stay free sanitary serve the save purpose as the Always brand of sanitary towel, which is a direct competition in that category. Additionally, in the medical care equipment segment, the company is facing a great deal of competition from cardinal health, which is diverting huge clientele from J&J for their surgical equipment, which is similar to theirs (North Jersey, 2015) Market share for J&J in the industry According to JNJ (2015a), the firm compared to other direct rivalries in the industry is considerably high in all categories (JNJ, 2015a). The firm led in two out three segments of its operation according to that analysis. This scope of analysis includes net income of the firm, number of employees, revenues as per the quarters and the gross margin in which all the company surpasses its competitors (JNJ, 2015a). Market structure of J&J J&J company best fits in the oligopolistic type of business whereby there exist numerous buyers but few sellers to provide the products. According to JNJ (2015a), there are not many competitors to J&J. Additionally, a market is an oligopoly if there is no restriction to buying and therefore the number of buyers is usually high (Tucker, 2011). This is the case with J&J considering that they deal with health care products, which are usually on high demand. The products in the health care sector are homogenous in nature which means that they are either similar or are slightly differentiated (Tucker, 2011). J&J fits in that categories because even if the competitors offers substitute product, they much or less the same as theirs. Way forward and future prediction for J&J Though J&J hold a significant market share compared to their competitors, they should not relax but rather should watch out for the upcoming industry markets to ensure they maintain or even expand that level of dominance. This is because the smaller firms are quickly catching up. Additionally, the future situations of this industry are very unpredictable due to fluctuating currencies, changes in government policies, bankruptcies of suppliers all of whom could plunge the firm into great financial problems. The firm ought also to continuously watch for emergent opportunities and persist with the vigorous research as well as development model that they currently have. Due to rising small firms, which are offering the same homogenous product as J&J, the market share is likely to fall by a smaller margin to pave way for these firms. References (2015a). Business Summary. Johnson & Johnson (JNJ). Retrieved from http://finance.yahoo.com/q/pr?s=JNJ+Profile Abbort Laboratories (2015). Our Products. Available from http://www.abbott.com/our- products.html Johnson & Johnson (2015b). Johnson & Johnson History. [Data file]. Available from http://www.jnj.com/about-jnj/company-history Johnson &Johnson (2011c). Responsibility report. [Data file] . Retrieved from http://www.jnj.com/sites/default/files/pdf/2011-responsibilty-report.pdf Johnson & Johnson (2013d). Annual report. [Data file]. Retrieved from http://www.jnj.com/sites/default/files/pdf/2013-annual-report.pdf Marshall. A. (2013).Principles of economics. Basingstoke: Palgrave Macmillan North Jersey (2015, February 20). J&J said to be in talks on sale of Cordis, with Cardinal leading. New Jersey Retrieved from http://www.northjersey.com/news/business/j-38-j- said-to-be-in-talks-on-sale-of-cordis- with-cardinal-leading-1.1275478 Tucker I.B (2011). Microeconomics for today. Mason, OH : SouthWestern Read More