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Drypers Corporation

MKT 650 Group 8: Critique Team

Zachary Connolly

on 11 May 2015

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Transcript of Drypers Corporation

Drypers Corporation
Strategic Alternatives
Fewer infants under 30 months of age & diaper improvements in absorbency and leakage control--> Modest growth of retail dollar value of unit volume of the U.S. disposable diaper market
Kimberly-Clark and P&G brands--> estimated 78.9% of total U.S. retail dollar sales of diapers and training pants in 1997
Double-digit sales growth since 1995--> 10-fold increase in international sales
Strategic/Tactical Situation
Marketing Strategy Mix
Premium-quality, value-priced diapers and training pants
Continued innovation and differentiation
Additional consumer products (specialty niches in large and fragmented consumer product categories)
Marketing Strategy Mix
Continued coordination with brokerage companies that facilitate distribution of products through grocery stores
Hire sales employees to help penetrate the mass-merchant and drug store retail distribution channels
Further joint-ventures with and acquisitions of foreign corporations as means of product distribution internationally
Strategic Alternatives
Six Point Business Plan for 1998
1. Continue product innovation to differentiate the Drypers brand.
Creates value for customers
Alternative Product Market Decision
1. Value-priced brand manufacturer:
Premium-quality at a low price--> retail prices often 40% lower than premium-priced brands (i.e. Kimberly-Clark and Proter & Gamble) for comparable items
1. Lack of national brand-name recognition:
Conversion of four regional U.S. brands (Drypers in the South, Baby's Choice in the West, Wee-Fits in the Midwest, and Cozies in the Northeast) into one common package design and brand name in 1994
$30 million dollar combined advertising and promotion budget
No television advertising in 10-year history
Significantly less spending on advertising than competitors
1. Product innovation to differentiate from competitors:
Introduction of Drypers Supreme with Germ Guard Liner in September 1998--> only diaper in the industry to include antibacterial treatment
1. Future uncontrollable global and/or domestic events adversely affecting financial performance:
History--> devaluation of Mexican peso in December 1994 and economic uncertainty in Brazil
Impending--> 1998-2002 Argentine Great Depression and 2007-2008 Global Financial Crisis
Combined shares increased since 1994--> extensive distribution coverage in grocery, mass-merchant, and drugstore markets
Both companies sell their products in stores that account for over 90% of U.S. diaper and training pants sales
Foreign-produced and exported products sold in over 28 countries--> international marketing efforts focused primarily in Latin America
Financial and Other Data
Pros & Cons
Market Penetration
2. Product solves needs of consumers
Sell current products in the markets for diapers and training pants outside of the United States
PRO(S) and CON(S)
Develop new products to be sold in markets for diapers and training pants outside of the United States
1. Incur no additional costs
Product Development
Market Development
2. Product differentiation and innovation:
Focus on odor-control and skin care in addition to diaper fit, absorbency, and leakage control (i.e. Drypers with Natural Baking Soda and Drypers with Aloe Vera)
Value-added features for training pants (i.e. one-piece design and fit to make them look more like real underwear)
Licensing agreement to use the Sesame Street trademark and characters on products, packaging and advertising materials
3. Stronghold in U.S. grocery store market:
Products sold through retailers that represent 66% of the total U.S. grocery store market for disposable diapers and training pants in 1997
Drypers brands captured 6.4% of the total dollar volume and 6.6% of the total unit volume for disposable diapers and training paints in the U.S. grocery store channel in 1997
4. Strong connections with retailers:
Cooperative advertising
Merchandising arrangements via brokers who have favorable long-term relationships with the retailers
Instore promotions and couponing
Zachary Connolly
Rishabh Johar

Man-Ching (Annie) Tu
Yutao Zhang

2. Less widespread distribution in mass-merchant and drugstore chain channels:
About 3.1% dollar market share in total U.S. disposable diaper and training pants market
3. No dedicated sales force in the United States:
In-house managers coordinate with brokerage companies that facilitate the distribution of products through grocery stores on a nonexclusive basis
5. Low corporate overhead expenses:
Result of using brokers
2. International expansion opportunities:
Modest growth of retail dollar value of unit volume of the U.S. disposable diaper market (see table in "Financial and Other Data" section)
Increasing international sales (see line graph in "Financial and Other Data" section)
$12 billion in annual manufacturers' sales in the international disposable diapers market
Opportunities in regions with low consumer penetration of disposable diapers (Latin America, the Pacific Rim, and Eastern Europe)
Future acquisition, joint venture, and other arrangements
6. Strong cash flow:
Earnings before interest, taxes, depreciation, and amortization (EBITDA) of $28.8 million for 1997
Working capital f $48.7 million at the end of 1997
7. International presence:
Manufacturing, distribution and administrative spaces in Brazil, Argentina and Mexico
33.3% of sales--> 28 countries, primarily Latin America
Acquisition of the Brazilian Puppet brand name and formation of a joint-venture to market the product in Brazil in February 1997
Exclusive private-label supplier to Walmart stores in Latin America (also sells Drypers premium-brand products)
3. Increase mass-merchant distribution channel:
Increased share of total diaper and training pants retail sales--> 30% in 1994 to 39.4% in 1997
Current distribution through selected mass-merchant (Super Kmart stores of Kmart, Meijer, and Caldor--> "get on the shelf in Walmart and Target"
2. Downward trends in the U.S. disposable diaper and training pants market:
Fewer infants under 30 months of age (see table in "Financial and Other Data" section)
3. Shift in distribution channels (as a percentage of total retail sales):
Grocery stores--> 60% in 1994 to 51.2% in 1997
Drugstore chains--> 10% in 1994 to 9.2% in 1997
4. Advertisement and promotional expenditures overshadowed by competitors:
Kimberly-Clark and Procter & Gamble each spend 5 times as much on television advertisement
Where are they?
Where do they want to be?
How are they going to get there?
Full U.S. distribution of Drypers diapers and training pants
"National brand that stands for quality and innovation"
Mass-merchant retail channel
Brand-driven sales--> 'We want consumers to buy Drypers because they're Drypers" Terry Tognietti, co-CEO and president of Drypers North America
Reliance on promotional spending and cooperative merchandising arrangements with retailers
Grocery retail channel
Higher-cost, promotion-driven sales
6-point business plan for 1998
$10 million national television advertisement campaign for 1998
Incorporated in 1987 as Veragon Corporation
Three college friends, David Pitassi, Walter Klemp, and Tim Wagner
Producer and marketer of premium-quality, value-priced disposable baby diapers and training pants
Drypers brand name in U.S.; Drypers brand name and other brand names internationally
Low-priced disposable diapers in U.S. and internationally under other brand names (Comfees)
Private-label diapers, training pants and premoistened baby wipes
Headquarters in Houston, Texas
Nine locations for manufacturing , distribution and administrative space in the United States, Brazil, Puerto Rico, Argentina, and Mexico
Top seller and marketer as well as top product
World's sixth largest producer of disposable baby diapers
Third largest marketer of brand-name disposable diapers in the United States (behind Kimberly-Clark and Procter & Gamble)
Drypers brand was the fourth largest selling diapers brand in the United States in 1997
Drypers brand was the second largest selling training pants brand in U.S. grocery stores in 1997
2. Offer "Everyday Value" branded products to consumers.
Lower price for the same quality and features as competitors
3. Continue to pursue international expansion opportunities.
Growth opportunities in areas of low consumer penetration
4. Expand product lines to include additional consumer products.
High-quality consumer products that occupy specialty niches in large and fragmented consumer product categories (i.e. laundry detergent)
5. Provide higher-margin products for retailers.
Sell products to retailers at a lower price--> retailers offer lower price to consumers while achieving substantially higher margins
6. Increase brand awareness and retail penetration.
$10 million national television advertisement expenditure
TV Ad Campaign
$10 million national television advertisement expenditure
1. Builds consumer awareness--> awareness boosts demand--> increased demand causes an increase in grocery store penetration--> increase in grocery store penetration helps break into the mass-merchant distribution channel--> mass-merchant retail penetration leads to a movement from higher-cost, promotion-driven sales to brand-driven sales
1. Represents a 33% increase in the company's combined advertising and promotion budget (about $30 million in 1997)
3. Uncertain effect on short- and long-term sales
Develop new products to be sold in the U.S. market for diapers and training pants
1. Product differentiation to compete with Kimberly-Clark and P&G
1. High costs of research and development, production and promotions
2. Possible adverse effects on profit
3. Limited consumer awareness
1. Untapped markets
2. Increasing need (high birth rates)
3. High profit margins
4. Build brand-awareness through joint-ventures or acquisitions
1. Uncertain market stability
2. Possible adverse effects on profit (due to #1)
3. High costs of production and logistics
Maintain current market positions and business model
1. Limited brand-awareness and retail penetration
2. Failure to tap potential markets for product(s)
3. No increase in profits
Combination of Market Penetration & Market Development
$10 million national television advertisement
Spending $10 million on national television advertisement:
Could hinder future profit
Isn't the best way to compete and achieve brand-awareness in the U.S. market--> "We've always tried to compete with Kimberly-Clark and P&G in areas where they can't beat us by throwing money at us. When it comes to money, they beat us every time. So we need, and we try, to put ourselves in competitive situations where we are competing on ideas and quickness, not just who has the deeper pockets." Terry Tognietti
"Everyday value"--> use to build brand-awareness
Sold at low price to retailers--> retail penetration
Integrated Marketing Communications
Continue current advertising and promotional activities (i.e. couponing) in grocery stores
Develop brand-awareness via sales force
Targeted market in low-to-middle income communities nationwide (TV ads, print ads, etc)
Instore and out-of-store product demonstrations
Increase in Gross Profit
Net income is too low
2. Only running in the first quarter (six months)
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