Drypers Corporation: National Television Advertising Campaign - Report Example

Drypers Corporation: National Television Advertising Campaign Executive Summary Background information Drypers Corporation is a leading producer andmarketer of premium quality diapers and training pants catering to the value-priced market. The company brand has captured the third highest share in the market for disposable diapers and training pants, following market leaders Huggies of Kimberly-Clark and Pampers of Procter and Gamble (Neff, 1996a). The company manufactures and sells other brands including Comfees, as well as other private-labeled diapers, training pants and premoistened baby wipes, both domestically in the U.S. and internationally, Drypers has never before relied on mass media advertising, and has only begun exploring the mass-merchant and drugstore chain distribution channels; they typically resort to targeted promotional spending and cooperative merchandising arrangements with their retailers, such as couponing. Problem Statement (1) To determine whether or not Drypers should adopt the $10 million national television advertising campaign for its Drypers brand of disposable diapers. (2) To assess the elements of the proposed business plan and the likelihood these elements may potentially increasing sales and building brand name for Drypers. Key analysis items Segments to be targeted are infants and children below 4 years of age, including their parents, particularly mothers primarily between 18 and 49 years of age, who make the purchase decisions. It is for this segment that the market is primarily targeted since it is infants who use disposable diapers, and children below the age of 4 who use training pants. The target markets include domestic and foreign markets, as well as other international venues where Drypers is considering expanding. The domestic US market is Drypers’s primary market, but this market is showing indications of slowing in growth, whereas the international market is quickly expanding. The key product/ brand item are disposable diapers and training pants. This is the product that actually carries the Drypers brand and which is its biggest seller, although Drypers Corporation has other products such as Comfees, a low-priced brand diaper, other private label diapers, training pants and premoistened baby wipes. A key promotion item is the company’s consideration of launching a nationwide television campaign to promote Drypers as a national brand. The company intends to do this only for a few months and then return to its previous promotions strategy. A key place item is the expansion of distribution channels to include a greater presence in mass merchant and drugstore chains which Drypers has underutilized until recently, while maintaining the present grocery store distribution outlets it presently has. A key price item is to maintain Drypers’s current value price even as the company seeks to develop Drypers into a national brand and competing with the premium priced brands for disposable diapers and training pants. Key recommendations Aside from adopting the six courses of action the company has decided upon, this study recommends additional that: (1) New product lines be developed with a premium-pricing strategy, such as a new line of feminine products and / or adult diapers, that make use of the same technology as infant diapers and training pants. These should be marketed under another brand. (2) Radio advertising should follow up the momentum created by the television advertising campaign. (3) Relational marketing through brokerages and in-store promotions such as couponing should be phased out as these would be redundant in the wake of establishing Drypers as a strong national brand. Problem Statement Background on company and key players Drypers Corporation’s roots can be traced back to 1984, when its founders began VMG Products, a diaper business, in Vancouver, Washington. The founders were comprised of three college friends, namely David Pitassi, Walter Klemp, and Tim Wagner. When the three friends graduated from college, David Pitassi found a job at Procter & Gamble, where he gained knowledge about the manufacture and sale of disposable diapers, and how the value-priced segments of the market was still largely undeveloped. At that time, Walter Klemp was a Coopers & Lybrand accountant, and Tim Wagner was employed at a Portland adhesives company. The three came together to search for investors who provide funding for their diaper-manufacturing project. They adopted a strategy of high quality and low price. They initially set up VMG as a partnership with a group of investors who helped the fledgling company until they regained their initial investment. VMG sold its products through supermarkets, significantly undercutting the prices of Huggies and Pampers, and was immediately successful (Pederson, 1997). By 1987, disagreements between the investors and the founders caused Pitassi and Klemp to break away and begin a new venture in Houston, Texas, where they had no competitors. By 1987 they raised $2.5 million which they used to begin a new diaper firm by the name of Veragon Corporation. They hired Terry Tognietti, formerly from Procter & Gamble, as chief operations officer. Tognietti was instrumental in launching P&G’s first “Luvs” brand boy/girl diaper product. The company’s new diapers were named “Drypers” which began being marketed in 1988 (Pederson, 1997). Veragon Corporation changed its name in 1992 and as of the date of this case was based in Houston, Texas (Bloomberg Businessweek, 2001). Drypers Corporation produces and markets Drypers, premium-quality, value-priced brand of disposable baby diapers and training pants. It also markets Comfees, a lower-priced brand, as well as private-label diapers, training pants, and premoistened baby wipes. The company is the third largest marketer of brand-name disposable diapers in the US, and counts Kimberly-Clark and Procter & Gamble as its major competitors, the first and second biggest brand marketers ahead of Drypers. Major issues in the case which are relevant to the problem Drypers is a value-priced brand relying on grocery retailers as its primary distribution channel, and depends on personal recommendations by physicians and the issuance of coupons as its promotional vehicles. It now plans to differentiate its brand and compete with premium-priced leaders Huggies and Pampers, but this requires promoting Drypers as a national brand. The implication is that Drypers will have to make use of more expensive national advertising and market its products through mass merchandising and drugstore chains. It also requires redirecting some of its strategies consistent with being a largely retail-distributed brand, to becoming a national premium-quality brand differentiated by its innovation and value price. The company is facing a significant strategic change and is gearing to take steps towards developing the Drypers brand into a nationally, differentiated brand name while maintaining its value orientation (Advertising Age, 1998). It hopes to do this through projecting its innovative image, exploring new distribution channels, and adopting a new promotional strategy. The first item, innovativeness, is already one of the strengths of Drypers Company; it has a track record of producing disposable diapers that had novel features from those commonly found in the market. The firm has had this capability from the beginning, based on the experience of David Pitassi, one of the founders, and Terry Tognietti, the first chief operating officer hired by the founders when the firm still went by the name Veragon Corporation. These two men have gained their experience and knowledge in the diaper industry from Procter & Gamble. The second item involved opening and expanding new channels of distribution from what was formerly the grocery retailers through which Drypers had been first marketed. Thirdly, the company contemplated exploring new promotions and advertising strategies, to address the strategic shift to national brand. The company formerly pursued promotions through targeted promotional spending and cooperative merchandising arrangements with their retailers, such as couponing. They are now contemplating embarking on a national television advertising campaign valued at $10 million (Neff, 1997c). Core problem The core problem is to assess whether or not Drypers will benefit from embarking on a proposed $10 million television advertising campaign, and from the 6 elements of the proposed business plan, in terms of advancing the brand name and increasing sales. Drypers is essentially adopting a strategic shift, moving up its Drypers brand to become a national brand capable of competing with Huggies and Pampers. The key dilemma is that by trying to compete with the premium priced brands, Drypers is constrained to enter into those production channels and make use of promotional media and strategies which the premium priced brands make use of. These promotional and distributional networks provide the greater reach and coverage which make the brand nationally recognized. Television is an important medium to elevate a brand to premium status, while drugstore chains and mass merchants are the faster growing distribution outlets. In comparison to the sales these outlets generate, the sales in grocery stores are diminishing in proportion to them. Despite its bid to become a national brand, Drypers wants to maintain its present value-priced position, which makes it difficult to generate the kind of revenues that can sustain the higher costs of attaining premium-brand status and maintaining it. Analysis and Evaluation Segmentation and Target market The following table contains information about the trends in sales of the disposable diaper for infants and training pants for toddlers from 1994 to 1997. The upper part of the table contains information from the case in terms of units and dollar sales. The second part is derived from the first part and shows annual growth rates. Table 1 Trends 1994 1995 1996 1997 Infants millions 10.00 9.80 9.70 9.70 Diapers sold billions 17.20 17.20 17.30 17.50 Diaper retail dollar sales M$ 3,880.00 3,825.00 3,855.00 3,930.00 Children millions 26.10 26.30 26.30 26.20 Training & youth pants sold M 970.00 1,070.00 1,250.00 1,410.00 Training & youth pants retail M$ 485.00 510.00 540.00 595.00 Growth 1994 1995 1996 1997 Infants, millions   -2.00% -1.02% 0.00% Diapers sold, billion units   0.00% 0.58% 1.16% Diaper retail dollar sales, $M   -1.42% 0.78% 1.95% Children, millions   0.77% 0.00% -0.38% Training & youth pants sold, M   10.31% 16.82% 12.80% Training & youth pants retail sales, $M   5.15% 5.88% 10.19% The market is comprised of infants and children below 4 years of age, and mothers who are primarily between 18 and 49 years of age who make the purchase decisions. The statistics for the industry are shown in the tables above. The growth rates immediately following show that the number of infants have been declining from 1994 to 1996 and remain constant for 1997, although the number of diapers sold have been increasing at an accelerating rate. The number of children has likewise decreased between 1996 and 1997, and may be assumed to decrease afterward. In spite of this, the number of training and youth pants sold has been increasing with double-digit figures. There has been a steady increase in terms of training youth pants retail dollar sales, and there has been an increase in diaper retail dollar sales. One inference that can be derived from this is that training and youth pants shows that the increase in unit and dollar sales for both disposable diapers and youth pants are not due to increase in the number of infants or children, who are the end-users of the product. The increases are due to two possibilities: (1) increased rate of usage, since prices remain much the same, or (2) increased market share by Drypers, as a result of gaining some of the customers who used to buy Huggies or Pampers. Either does not bode well in the long run, because each individual child or infant will only tend to increase in his or her usage to a certain point, and Drypers can only expect gain market share from the other suppliers only so far. There is therefore a need for Drypers to explore new untapped markets which may have unfulfilled demand for premium quality, value priced diapers and training pants. Broadening its markets may mean increasing its international sales; emerging markets would prove particular attractive because their growing economies would mean individuals living in these growth markets are experiencing a lifestyle change towards greater modernization. Disposable diapers and training pants may therefore find greater demand. The table above shows the strong growth in international sales. Product Strategy In the past, Drypers has shown it ability to innovate and introduce new features in diapers, such as skin care, diaper fit, absorbency, and leakage control. The Drypers brand has also gained distinction for such products as Drypers with Natural Baking Soda (Mehegan, 1996b) and Drypers with Aloe Vera, for which it won the Gold Edison award for most innovative product for children. The company has decided to differentiate the Drypers brand (according to co-CEO Terry Tognietti, in Dryper Case, p. 349), which signals its transition to bid for national brand-name recognition from being a value-priced brand. The competitors are principally Huggies and Pampers. Huggies is produced and marketed by Kimberly-Clarke, and its main selling point is that it is soft to the touch which is ideal for babies sensitive skin. Its main lines are Huggies for newborns, Huggies Dry Comfort (later called Huggies Total Protection), and Huggies Dry (Huggies.com, 2013). Pampers is produced and marketed by Procter & Gamble, and its distinguishing characteristic is its softness and ability to keep baby dry. Its main lines are Pampers New Baby, also for the newborn until 5 kg weight, Pampers Active Baby for babies 3 to 5 kg in weight, Pampers Active Baby Pants for babies and toddlers weighing 7 to 12 kg, and Pampers Comfort for overnights, for infants and toddlers 3 to 17 kg in weight (Pampers.com, 2013). Branding items, competition There are three general categories of manufacturers: (1) premium-priced, branded manufacturers, led by Procter & Gamble and Kimberly-Clark; (2) value-priced branded manufacturers; and (3) private-label manufacturers. P&G markets its brand Pampers, while Kimberly-Clark markets Huggies. The market shares of the two competitors are as follows: Drypers ‘has found it necessary to compete against Kimberly-Clark and Procter and Gamble in novel ways.’(p.349). Drypers belongs to the value-priced branded manufacturers, and typically channels its diapers through grocery stores. They lack the national brand-name recognition and the national production and distribution capacity to supply mass-merchants and drugstores. In 1997, Drypers brand is the fourth largest selling diaper in the US and second largest training pants brand in U.S. grocery stores. Drypers brand reputation is innovativeness and premium quality at a value price 40% lower than premium priced brands. Huggies and Pampers are both known nationally, and have strong following among parents who are willing to pay more for top quality, a reputation the two leading brands maintain. Both Huggies and Pampers have a full line up of product lines for the specific need of infants and children as they progress from one year to the next. Promotion Strategy Drypers is making a bid to become a national brand and compete with Kimberly-Clark’s Huggies and Procter and Gamble’s Pampers. The two leading brands are successful premium-priced quality brands, while Drypers is a value-priced quality brand. The advertising expenses of the two leaders are shown in the table following. 1997 Media Advertising Television Print Total $M % $M % $M % Kimberly-Clark Huggies 57.2 75.6% 18.5 24.4% 75.7 100% Procter & Gamble Pampers 52.8 75.9% 16.8 24.1% 69.6 100% In order for the company to break into the national brand-name category, the company has to contemplate breaking out of the constraints of its present promotional strategy. Drypers distributes its brand only through grocery stores where it makes use of cooperative in-store promotions and couponing, and making the change may require it to become open to the possibility of marketing through broadcast media (i.e., television). It should highlight quality, value-price, and innovation. The argument in favor of television advertising is that it will build consumer awareness for Drypers as a national brand committed to quality and innovation. This is said to enable mass merchants to penetrate the retail market, and enable Drypers to shift from higher-cost, promotion-driven sales to brand-driven sales (Drypers 1997 Annual Report, p.11). Also, the company does not have its own sales force in the US, but it uses in-house managers to coordinate the brokerage companies that distribute the products through grocery stores. The use of brokers minimizes overhead expense, but primarily takes advantage of the brokers’ good long-term relationships with retailers. If the company is able to establish a national brand then relational sales and distribution will no longer be a constraint, because the brand will have instant recognition. Pricing Strategy The retail value of U.S. disposable diapers is suggested by the table below, which is derived from the raw data provided by Table 1 above. The U.S. retail value per unit diaper and per unit pants were derived by dividing the total dollar sales for each product category by the number of infants and children for that year. There is a gradual fall in the average US dollar retail value for each category, by one cent for diapers and eight cents per unit training pants. However, the cheaper the product becomes, the higher the rate of usage per child. Table 2 Per Unit / Per infant or child stats 1994 1995 1996 1997 US$ retail value per unit diaper 0.23 0.22 0.22 0.22 US$ retail value per unit pants 0.50 0.48 0.43 0.42 Diapers per infant 1,720 1,755 1,784 1,804 Pants per child 37 41 48 54 Drypers presently prices its Drypers brand products at 40 per cent lower than the premium-priced brands. The company wishes to maintain this advantage even as it builds its reputation as a premium quality national brand. It intends to do this by limited national television advertising. Place and Channel Strategy More than half (51.2%) of disposable diapers and training pants are principally marketed through grocery stores, and the remainder through drugstores and mass merchants. The market share born by mass merchants is growing, however, while those of the other channels are declining. Until recently, Drypers relied primarily for its sales through grocery stores, but recently the company has obtained distribution through selected drugstore and mass-merchant chains. For this move to be successful, the brand name should have sufficient pull for customers to purchase it off the shelf rather than have the mass-merchandisers push the product. There is a significant shift for diaper sales away from grocery stores towards drugstore chains and mass merchants. These are shown in the following table as the drop in sales through grocery chain stores by 7.6% from 1994 to 1997, and a corresponding rise in the other two. Distribution Channel 1994 1997 $ Million Percentage $ Million Percentage Grocery store chains 2,300 58.9% 2,000 51.3% Drugstores 1,200 30.8% 1,500 38.5% Mass merchants 400 10.3% 400 10.3% SWOT Analysis Drypers Corporation’s SWOT table is shown in the appendix. The company’s main strengths include its track record for innovation, its premium quality combined with value pricing, its strong cashflow and the licensing agreement it has struck with the CTV for the use of the Sesame Street characters, which in itself is an endorsement of Drypers as a quality product for children. Its weaknesses include Drypers’s limitations in promotional and distributional options, which it is seeking to address at present by considering other alternatives; its limitation to its value price position which it cannot reconsider, and therefore its limitation in terms of financial resources. It also lacks its own sales force and its national production is not as intensive as those of Kimberly-Clarke and P&G. There are various opportunities open to Drypers, including new international markets which are fast growing in demand, expansion into mass merchant and drugstore chain distribution outlets, television advertising to increase brand awareness, and expansion of product lines to meet other infant and toddler needs. Threats to it are international economic uncertainties, the reduction in grocery sales of diapers and training pants, and the possibility that Kimberly-Clarke and P&G will recognize Drypers as a potential threat and enter into a price war by lowering their prices. Drypers’ main competitive edge over the leaders is its value price, an advantage which will be threatened if the other two, with their massive resources would temporarily lower their prices also to crowd out Drypers and prevent their loyal followers from shifting to Drypers. Recommendations The company has embarked on six key elements which this study believes would be advantageous to its future strategy. They are the following: (1) Product innovation. By all means the company must continue to pursue product innovation which from the beginning has been a key competitive element. (2) Offer ‘everyday value’ brand products. Likewise it should continue to offer value in its products, and to maintain this strategy for the Drypers main line of products. New lines of “Everyday Value” brands which the company may develop could be designed to support the Drypers brand and take advantage of the national recognition while providing more options to the customers, as long as the new brands do not cannibalize each other’s markets. (3) Pursue international expansion. As earlier observed, international markets are growing faster than the domestic, and Drypers value pricing position will be particularly attractive to the consumers in the emerging economies. (4) Expand product lines to include additional consumer products. This may be undertaken to increase the revenue potential of the firm and make use of the new capacity it has acquired after the reduction of its debt, but the new products should be coherent with the Drypers image as a quality manufacturer of infants’ and children’s products. It will not do, for instance, for Drypers to come up with alcoholic drink products. (5) Provide higher-margin products for retailers. This goes without saying if Drypers wishes to maintain its value-price proposition to the end user. (6) Increase brand awareness and retail penetration. Absolutely, the company must undertake its television campaign in the manner it has decided upon, notwithstanding the initial cost, as long as the momentum created by the new national brand recognition will be supported by other means after the campaign (this study recommends radio spots, see below). Additional recommendations include the following: (7) In addition to offering higher-margin products for retailers, the company should explore manufacturing premium-priced product lines by which it may earn a higher profit margin for itself. A good line of products is the creation of a line of feminine products which it may price higher through another brand name. The feminine product may include sanitary napkins and pantyliners, as well as moisturized wipes and fresheners packaged in a way that ladies may discreetly carry around in their purse. A similar alternative is expanding to adult diapers and similar products, which may also be priced higher. These products will make use of much of the same production technology as baby products and could be used to take up the added capacity of the firm. (8) Aside from the television campaign, the company should also explore radio advertising, which is considerably cheaper than running television as spots per se, but which has the same geographical and demographic reach. Many parents who travel to and from work will be listening to their radios and may be accessed more frequently by radio than television ads. After the television campaign would have been halted, the radio ads should continue to prolong the gains made in brand recognition made by television. (9) In addition, this study recommends to do away with brokerage companies and to deal directly with mass-merchants and drugstore chains. With a stronger national brand and expansion of the distribution channels, the company will not need to rely on the personal relationships of brokerages to gain access to retail grocery stores. It should also consider doing away with in-store promotions and couponing for the Drypers brand. In the event that Drypers becomes a nationally recognized brand, the local retail efforts will have little incremental effect. References Bianchi, A. (1997). `My name is Dave, and Im a growthaholic.. Inc, 19(15), 90. Bloomberg Businessweek (2013) ‘Company Overview of Drypers Corporation.’ Bloomberg Businessweek. Retrieved from http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=27735 Huggies.com (2013) Huggies official product website Mehegan, S. (1996a). David Olsen. Brandweek, 37(42), 60. Mehegan, S. (1996b). Drypers: $10M into baking soda diapers. Brandweek, 37(21), 1. Neff, J. (1996a). Drypers in spot to bolster slot as No. 3 diaper brand. Advertising Age, 67(47), 22. Neff, J. (1997b). Drypers. Advertising Age, 68(26), s28. Neff, J. (1997c). Value-brand Drypers readies biggest ad push. Advertising Age, 68(18), 8. Neff, J. (1999d). Drypers calls it quits on germ-fighting line. Advertising Age, 70(49), 24. New level for Drypers. (1998). Advertising Age, 69(7), 4. Pampers.com (2013) Pampers official product website Pederson, J.P. (1997) ‘History of Drypers Corporation.’ International Directory of Company Histories. Vol. 18. St. James Press Poole, C. (1999). Diaper Run. Latin Trade (English), 7(7), 28. Posner, B. G. (1993). Targeting the giant. (cover story). Inc, 15(10), 92. Sullivan, R. (1996). Diaper guerrillas. Forbes, 158(1), 58-59. Appendix SWOT Table Strengths Track record of innovation (such as introduction of Drypers with Natural Baking Soda and Drypers with Aloe Vera) Won the Gold Edison award for most innovative children’s product. Third largest brand in the market, next to Kimberly-Clark and Procter & Gamble Has retail prices lower than premium-priced brand by 40 per cent Endorsement by Children’s Television Workshop, that allowed the use of Sesame Street characters through licensing agreement Strong cashflow has enabled the company to reduce its debt and increase production capacity International expansion is strong and increasing in volume Weaknesses Drypers primarily relies on grocery store distribution but has only tentatively explored mass-merchant and drugstore-chain channels, and are not sure of the possible results Because of its value-price position, Drypers cannot increase its prices significantly to defray the cost of televised advertising Advertising expense has been rising significantly, but its advertising budget lags far behind its competitors Presently Drypers has no national brand name recognition National production and distribution capabilities are not as intensive as its rivals.. Absence of a dedicated sales force Opportunities Market potential open to possibility of product differentiation while maintaining value position. Mass-merchant and drugstore-chain channels are viable distribution channels Drypers has not yet fully explored TV advertising may increase brand awareness Expansion of product lines to meet other infant and toddler needs Potential first-mover advantage with regard to the germ protection feature it is exploring Threats International uncertainties such as exchange rate volatilities and economic weaknesses threaten the international sales of Drypers Mass-merchant and drugstore chains are increasing in their proportion of sales in the market, while grocery sales are falling in proportion to mass-merchant and drugstore chains. Likelihood that P&G and Kimberly Clarke may wage a price war in a possible contracting economy. Read More