OVERVIEW OF THE CASE

Drpers Corporation is a producer and marketer of premium quality, valued-price

disposable baby diapers and training pants sold under Drypers brand nama in the United
States (U.S) and under other brand names internationally. The company also
manufactures and sells lower=priced disposable diapers under other brand name such
as Comfees in the U.S and internationally, as well. In addition to private-label diapers,
training pants and premoistened baby wipes.

In 1997, branded products represent 88.9% of company net sales in the U.S, sales of
private label and other products account for remaining sales. The company’s Drypers
premium-brand diapers and training pants account for 52.3% of total company and
domestic net sales for the same year, which was decreased, from 62.3% in 1996 and
61.3% in 1995. The company leases manufacturing, distribution and administrative
space in nine locations in the U.S, Brazil, Puerto Rico, Argentina and Mexico. Corporate
headquarters are located in Houston, Texas.

The company is the world’s sixth largest producer of disposable baby diapers and the
third largest marketer of brand name disposable diapers in US. In 1997, the company’s
Drypers brand achieved the fourth largest selling diaper brand in US, and the second
largest selling training pants in grocery stores.

Late of 1997, the senior executives discussed to spend more than $10 million dollars on
national television advertising in 1998. However, the discussion needs to analyze the
impacts on Drypers Corporation including the short and long term affect to ensure the
effectiveness of the spending. The market for disposable diapers and training pants is
for infants who are in age of birth until 30 months and children who are range of age 8
and use the diapers as well as training pants. The mothers can be as the target market
for diapers manufacturer because they will make a decision on the brand of diapers and
training pants which they would like to buy for their children and usually make the
purchase.

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 Table 1: Trends in U.S Disposable Diaper and Training Pants Market.

1994 1995 1996 1997

Infants (million): Birth to 30
months 10 9.8 9.7 9.7

Diapers sold (billions of units) 17.2 17.2 17.3 17.5

Diaper retail dollar sales
(millions) $3,880 $3,825 $3,855 $3,930
Children (millions): 18 months to
8 years 26.1 26.3 26.3 26.2

Training and youth pants sold

(million of units) 970 1070 1250 1410

Training and youth pants retail

dollar sales (millions) $485 $510 $540 $595

Table 1 shows the trends in U.S disposable diaper and training pants market between

infants and children. According to the Table 1, the retail dollar value of unit volume for

the market, has recorded modest growth in recent years due to trend in fewer infants

below 30 months of age and diaper improvements in absorbency and leakage control.

This is because in 1994 the sales for disposable diapers is estimated as $3.88 billion,

then decreased to $3.825 billion before it increased again in 1996 and 1997 but in a little

amount of increased. In 1996 the sales is $3.855 before it increase as much as $0.075

billion in 1997 and estimated to be $3.93 billion for that year. While, the trends for

training and youth pants also showing the increases in their retail sales from $485 million

in year of 1994 until it is estimated to be $595 in 1997.

2
COMPANY HISTORY AND BACKGROUND

Drypers Corporation is the third-largest manufacturer of disposable diapers and related

products in the United States. The company's product line includes disposable diapers,
disposable training pants, and pre-moistened wipes, most of which are marketed under
the Drypers name. In the diaper market, industry giants Procter & Gamble and Kimberly-
Clark lead Drypers, to which it is a distant third place finisher holding less than a 10
percent share of the domestic market. Nevertheless, the company has successfully
created a niche for itself by creating quality products that sell at significantly lower prices
than those of its competition.

Drypers Corporation was formed in 1987 under the name Veragon Corporation, although
the company's roots can actually be traced back three years earlier to when the
company's founders launched another diaper business in Vancouver, Washington,
called VMG Products. VMG was the brainchild of three college friends, David Pitassi,
Walter Klemp, and Tim Wagner, all of whom shared an entrepreneurial spirit and
dreamed of starting their own business. Following college, Pitassi took a job with Procter
& Gamble, where he learned about the disposable-diaper business and the
underdeveloped value-priced segment of the market. Both Klemp, a Coopers & Lybrand
accountant, and Wagner, who held a job with a Portland adhesives company, joined
Pitassi in a search for investors to back their own diaper-manufacturing project, which
would focus on producing a quality product at a low price.

The three men soon set up a limited partnership with a group of investors who agreed to
fund the company's start-up and then remain involved until they regained their initial
investment. It was agreed that at that point, the investors would relinquish most of the
company's earnings and its control to the founders. In mid-1985, VMG began shipping
its diapers to West Coast supermarkets, selling them at prices significantly lower than
selling those of the national brands such as Procter & Gamble (Pampers, Luvs) and
Kimberly-Clark (Huggies) at prices.

VMG was instantly successful, and within months, the fledgling company had reached its
projected sales figures for five years down the road. Strangely enough, though, this
success led to immediate problems for the three founders, who had no real financial

3
stake in the company. To keep up with demand, they realized that it would be necessary
to increase their production facilities and plow more money into expansion. Their
partners, however, had agreed only to the initial investment, and refused to reinvest until
after they had recaptured their original money. Heated debates ensued until late 1985,
when the investors met and voted to oust the company's three founders. Wagner
accepted a new job with VMG, but Pitassi and Klemp left with bitter feelings.

Late 1980s

It was not long before Pitassi and Klemp had begun planning a new venture to take the
place of VMG. They relocated to Houston, Texas, where there wasn't already another
regional diaper brand with which to compete. The two men spent all of 1986 searching
for investors, actually turning down some prospects because they sensed too many
similarities to their first experience in Washington. Finally, by mid-1987 they had raised
almost $2.5 million to fund the purchase of equipment and the initial production and
distribution costs of their new enterprise, Veragon Corporation. One of their first moves
was to hire Terry Tognietti as their chief operations officer, after wooing him away from
Procter & Gamble where he had helped introduce the first "Luvs" brand boy/girl diaper
product. Once Tognietti was in place, Veragon moved forward in its plan to produce and
sell a high-quality product at a low price that consumers would appreciate. The company
began shipping its new diapers under the name "Drypers" in the summer of 1988.

One of Veragon's most important assets was the relationships it formed with the
Houston retailers that stocked its product. National-brand diapers were not typically a
moneymaker for retailers, because they were sold for little more than the wholesale price
that the big companies charged for them. Retailers had no room to negotiate these
terms, however, because consumers wanted diapers and thus the stores had to stock
them, regardless of the fact that they were not profitable items. Veragon decided to use
the retailers' disenchantment with diaper products to its advantage. Because it was a
local Houston company, it saved money on distribution costs, and the company also
used local raw materials, which saved money on production as well. Therefore, Veragon
was able to sell its product to retailers at a considerably lower price than Procter &
Gamble and Kimberly-Clark, while still maintaining a retail price-point that was about one
dollar cheaper than the national brands. Sales of Veragon's Drypers would be profitable

4
for the stores, whose managers knew it. Soon almost everyone agreed to stock the
Drypers product.

Another marketing strategy that proved successful for the young diaper company was its
effort to mold advertisements and promotions to the needs of the individual stores that
stocked the product. While Huggies, Luvs, and Pampers ran general advertisements on
a national scale, Drypers focused on bringing customers into individual stores, which
further strengthened its relationship with the retailers. These relationships proved
themselves crucial when Veragon experienced its first attack by Procter & Gamble and
Kimberly-Clark.

As the product gained popularity in the Houston area, though, the big companies issued
$2-off coupons for their Pampers, Luvs, and Huggies in that region, attempting to
destroy the Drypers price advantage. Pitassi came up with a genius counterattack
strategy, however, which drew upon Veragon's strong relationships with its retailers. He
convinced stores to apply any diaper maker's coupon to the purchase of Drypers, which
turned the big companies' coupon attacks against themselves. Veragon ran local
newspaper advertisements inviting customers to "Pamper, Hug, and Luv Us," and use
their coupons to try out the new Drypers product. The marketing ploy worked like a
charm, and Veragon was soon running at full production capacity to keep up with the
heightened demand.

Veragon achieved first-year revenues of $101,000, which almost tripled the following
year as 1990 revenues jumped to $285,000. In 1991, the company changed its name
from Veragon Corp. to Drypers Corp. It was during that year that Drypers hit it big, as
sales not only surpassed the $1 million mark, but also actually topped off at $35 million.
Drypers had spent the year exercising another brilliant marketing plan, which once again
involved using Procter & Gamble's and Kimberly-Clark's own promotions to Drypers'
advantage. Both big companies ran "educational" advertisements on a nationwide scale,
which attempted to convince customers that certain characteristics of diapers were
beneficial and necessary to have a dry and happy baby. For example, the big companies
spent millions to explain the advantage of boy/girl-differentiated diapers. Drypers'
advertisements simply acted as a follow-up; the big companies had already convinced
the consumer to buy boy/girl diapers, and Drypers' ads focused on selling its own
boy/girl products as opposed to those of the other companies.

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Even though Drypers often opted to ride the coattails of its large competitors, the small
company actually came up with some interesting innovations of its own as well. For
example, Drypers attempted to appeal to working parents whose children went to day
care facilities when it added a blank space on its packaging so parents could label and
identify their diapers with their children's names. The company also introduced
"perfume-free" products in the early 1990s, which were accompanied by an advertising
campaign based on the idea that the perfumes used in most diaper products can be
irritating to babies' sensitive skin.

Nationwide Expansion in the 1990s

If Drypers was a small annoyance to Procter & Gamble and Kimberly-Clark in their
Texas markets during its first few years, it became an actual headache in 1992 when it
expanded its distribution scope nationwide. 1992 saw Drypers acquire two other regional
diaper makers, in an attempt to join forces and compete with the big companies, rather
than compete against each other. Ironically, Drypers first acquisition was VMG, Pitassi
and Klemp's first diaper company. With the purchase, Drypers gained access to the
market in the Pacific Northwest. Then in late 1992, Drypers purchased an Ohio-based
company called UltraCare Products, which possessed a distribution network throughout
the Midwest.

By the end of the year, Drypers' sales had doubled to $77 million. The company
possessed over 5 percent of the market for diapers in the United States, making it the
country's third largest diaper manufacturer. Drypers had experienced a growth rate of
over 49,000 percent since its inception in 1987, earning it the number one spot on Inc.
magazine's 1993 list of fastest-growing private companies. 1993 sales broke the $150
million mark, nearly doubling in the space of one year. Meanwhile, private label and
value-priced goods and merchandise were gaining popularity with consumers, shedding
the "cheap" image that had often plagued generic brands in the past. Consumers were
looking for quality products that they could afford, and were turning to discounted brands
like Drypers more and more often.

In early 1994, Drypers went public, offering its stock at $14.50 per share. Industry
analysts’ projected great things for the "little" diaper company, and people hoping to
jump aboard early and earn huge returns in the future quickly rounded up its stock. Even

6
Robert Sanborn, who had managed the leading U.S. stock fund for the three previous
years, chose Drypers as one of the top five picks for the following year. Suddenly the
name Drypers was becoming well known around the country, and so the company
decided to capitalize on the name recognition factor and combine all four of its regional
diaper brands under the Drypers name. Around the country, Baby's Choice, Cozies,
Wee-Fits, and Drypers were rolled under one umbrella and tagged with the Drypers
name.

Unfortunately, the nationwide change of all regional brands to the name Drypers acted
against the company, rather than in its favor. Many customers were not adequately
informed of the switch, and thus did not follow their brand, as it became Drypers.
However, even more detrimental was the poor timing of the switch, which coincided with
two other major changes. First, the company opted to make a switch from thick to thin
diapers, which when combined with the name change made it confusing for consumers
to relocate their previous brand once it became Drypers. In addition, the price of raw
materials suddenly skyrocketed during the middle of the confusion, which brought on a
price increase. These factors all hurt Drypers, and in fiscal 1995, the company
experienced its first annual sales decrease, from $173.6 million in 1994 to $163.9 million
in 1995.

Furthermore, a new price war being waged between Procter & Gamble and Kimberly-
Clark combined with Drypers heightened production costs to virtually destroy the
company's retail price advantage. In fact, the big companies' promotional prices were
often below the everyday prices for the Drypers brand. Without its low price advantage
to appeal to its customers, Drypers quickly began to lose market share. The company
suffered losses of $15.5 million in 1995, and after debuting at $14.50 per share the
previous year its stock plummeted to lows of less than $4 per share. Rumors began to
surface that Drypers would either seek bankruptcy protection or sell its holdings to
another company.

Amazingly, however, the tide turned once again for the struggling company in late 1995.
The price war between Procter & Gamble and Kimberly-Clark subsided, and the cost of
raw materials decreased dramatically as well. Drypers made a last ditch effort to stay
afloat. Internally, the company reorganized to decrease its operating costs. This included
the consolidation of its production operations to its facilities in Ohio and Washington. It

7
also secured a large line of credit to handle expenses, and earned approximately $9
million when it initiated a preferred stock placement offering. Drypers once again set its
retail prices lower than those of competitors set, and used its new earnings and credit to
reinstate its promotional and advertising campaigns and recapture its customer base.

By early 1996, Drypers had regained almost 7 percent of the market for diapers in the
United States, its largest share ever. The company was planning the rollout of a new
diaper containing baking soda to control odors, and was working to increase its
presence in the international market with continued expansion into Latin America.
Drypers executives hoped that these measures would further aid the company in making
a solid comeback. As the company entered the end of the decade, it had been seasoned
by its string of difficulties throughout its short history, and thus seemed well equipped to
handle the pressure of maintaining a profitable enterprise in the face of fierce
competition.

As the company expanded, they were discussing whether they should adopt the national
television advertising in order to penetrate the market. Below is the analysis to make
decision.

8
DECISION MAKING PROCESS

After we had discussed about the background of disposable diapers and training pants
industry and Drypers Corporation itself, now we will focus to the problem in the
company. As explain before, Drypers Corporation was discussing the benefits of
spending upwards of $10 million on the National TV Advertising Campaign in 1998.
According to this, Drypers Corporation has to make the decision-making process to
ensure the better solution. There are six steps in decision-making process which called
DECIDE where each step has different implications.

• Define the problem

• Enumerate the factors

• Consider the relevant information

• Identify the best alternatives

• Develop a plan for implementing the chosen alternative

• Evaluate the decision

1) DEFINE THE PROBLEM

Drypers Corporation’s senior executives discussed about spending $ 10 million dollars

on national television advertising for the year 1998. The amount of the campaign is likely
to product a positive effect for Drypers. However, it is impossible to state whether it will
be as successful as it is anticipated to be. In other words, the company has never
invested in the TV advertising campaign and it has always heavily relied on the other
sources of promotion such as newspapers, word-of-mouth and other printed materials,
therefore, it has less expertise in the area. To compete and continue, as Procter &
Gamble along with Kimberly Clark started occupying considerable shares of the market,
Drypers realized it has to change its strategy in order to ensure not to be outplayed by
these rivals. The top management of the corporation strongly believes that the
investment in a national television campaign to build brand awareness is the key to
achieve full product distribution and higher overall sales.

9
Yet establishing a widely recognized brand name can only be done by offering special
features to the customers, the characteristics, which the competitors do not have.
Speaking about the overall effectiveness of the national television advertising campaign,
it has to be noted that Drypers may have run into a potential problem, which can only
become evident a few months after the campaign begins. The Drypers management
emphasized the point of quality and exclusivity rather than money spending as the main
drivers of success for the Drypers. P&G along with KC have more resources and can
easily outplay Drypers if the competition is based on the amount of money spend on
advertising and marketing. Eventhough Drypers acknowledges this fact, it still entered
into the money-fuelled race with these companies.

In other words, there is no guarantee that P&G will not set-up a counter-advertising
campaign to decrease the positive effect of Drypers brand name building. If such
situation takes place, Drypers will loose, because it has less money. In addition, TV
advertising campaign is likely to bring more benefits than losses to the corporation.

2) ENUMERATE DECISION FACTORS

The second step is Enumerate the Decision Factors where it explains two sets
decision factors which are alternatives courses of action and uncertainties that must be
enumerated in the decision making process. Looking at Drypers Corporation, the
company has their own marketing strategies in the various elements of the
organization’s marketing mix (4Ps). In term of Price, Drypers Corporation offered the
premium quality product at the lower price compared to the competitors.

Besides, in Product the company creates unique products, which offered diapers that
focused on the skin care like Drypers with Aloe Vera and Diapers with Natural Banking
Soda. Furthermore, in term of Promotion of Drypers Corporation, the company focuses
on sales promotions and little advertising expenditure. For instance, the company relied
on print advertising, placed coupon in newspapers, direct mail as well as in-store
promotions. Refer to Place, the company market their products only through the grocery
stores compared to Kimberly-Clark and Procter & Gamble where both have more than
one distribution channels.

10
According to the company’s problem, there are also uncertainties that are controllable by
the company itself. One of the uncertainties is reactions from the competitors toward the
action taken by Drypers Corporation if the company spends upwards on the television
advertising. It may cause the competitors to take aggressive actions because they do
not want their consumers to switch to the others type of product. Beside that, the
company also will face the uncertainties of the consumers respond towards their national
advertising campaign. For instance, it is not impossible if the consumers do not aware
with the products and at the same time would not create recognition.

Other factors to be considered are:

1. Increase penetration of grocery outlets

2. Increase grocery penetration will help increase mass merchants see us in a
new light and help us break into this all important retail channel.
3. Move from promotion driven sales to brand driven sales.
4. To build large scale brand recognition
5. To build their product name into one that is sought out by the consumers
6. Drypers seeks to increase market share and stock price in 1998.
7. Drypers Corp. plans to continue product innovation to differentiate the brand
8. Offers “Everyday Value” branded product to customers
9. Continue to pursue international expansion opportunity
10. Expand product lines to include additional customer products
11. Increase brand awareness and retail penetration

3) CONSIDER THE RELEVANT INFORMATION

The amount of $10 million dollars is huge amount expenditure, therefore short and
long-term sales, brand building effect, and profit impact are parts of the plan for the
year 1998.

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 In order to adequately access to performance of a company and effectiveness of the
particular advertising campaign, it is essential to know how the sales increased after
or during the campaign. What return the company anticipated the campaign to bring
and what actual return the campaign generated. Furthermore, the annual statements
(Balance sheet, income statement, and cash flow statement) are needed to evaluate
the overall performance of the company. For instance, the information on the
company contains its EBITDA values, but this sum does not indicate anything on its
own. The Drypers need to know EBITDA margin, which is EBITDA divided by Net
Sales, Net Profit Margin, and to determine how profitable the company is. ROI and
ROE are two of the most popular measures of the company’s profitability level.

Apart from the financial statements, they have to know the company’s overall goals
and hidden strategies to be able to assess its work properly. For instance, the
company may desire to indirectly target a certain segment of the population by its
campaign. If a person is not aware of the hidden goals of a particular campaign, he
or she may consider the current strategy to be shallow or superficial. Yet, once the
real goals behind promotion are known, the person understands the true value of the
campaign.

Break- Even Market Share

TV Budget 1997 $/ Percentage

Market Share
Company (Million of Dollars) Point
Kimberly Clark (KC) 75.6 41.2 1.835
Procter & Gamble
(P&G) 69.6 37.7 1.846
Drypers (current) 3.219 3.1 1.038
Drypers - &10
million 13.219 5.43 1.84

Calculation of Distribution Coverage:

Outlets – 20,000 units
66% of the total U.S Grocery Store (coverage in grocery)
66% x 51.2% = 33.79% @ 33.8% of grocery store in U.S
6.5% it has, but increases its coverage from 66% to 70% of the total grocery market
for diapers and training pants.

12
6.5% = x = 6.8%
66% 70%

Break- Even Sales

Total Domestic
Gross Margin
Demand analysis

From the year 1994 to 1997, the number of infants born in US is around 10 million

Additional Sale
(birth to 30 months). A baby, on overage uses five diapers per day for 30 months, for
4500 diapers. At an average retail price in the range of 18 to 27 cents per diapers
where each baby represents about 1012.5 dollars in retail sales. The dollar value of
the US disposable diapers market was estimated to be 3.39 billion dollars in 1997.
The retail dollar value of the training pants and young pants market was estimated to

Even
be 595 million dollars in 1997.

Distribution channels
Disposable diapers and training pants are distributed principally through grocery

(38.8/100 = 10 M
stores, drug stores and mass merchants. Grocery stores accounted for
approximately 2 billion dollars in diapers and training pants, which has been
decreased as a percentage of total retail sales since 1994. Grocery stores accounted
for 51.2% of retail sales in 1997, as compared with 60% in 1994.

Percent Increas
Mass merchants and drug stores recorded diapers and training pants retail sales are
about 1.9 billion dollar in 1997. Mass merchants have increased their share of total
diaper and training pants retails sales from 30% to 39.4% in 1994 and 1997

13
respectively. The drug stores share of diapers and training pants retail sales has
declined from 10% to 9.2% in 1994 and 1997, respectively. Table 2 below will show
this further:

Table 2: Distribution Channels Retails Sales

Distribution Channel 1994 1997

Grocery Stores $2.3 billion (60%) $2 billion (51.2%)

Drugstores $1.2 billion (30%) $1.5 billion

(39.4%)
Mass merchants $0.4 billion (10%) $0.4 billion (9.2%)

Competitors

Manufacturers of disposable diapers and training pants are typically grouped in to

three categories:

1) Premium priced branded

2) Value priced branded
3) Private label

1) Premium-priced Branded
P&G and KC are the leading manufacturers of this category with their well-known
Pampers and Huggies premium brands respectively. They compete based on
product quality, product features, benefits, and price, as well. Both companies invest
heavily in research and development (R&D) and in consumer advertising and
marketing support for their brands. Consider in 1997, P&G spent an estimated $69.6
million in measured media advertising for its Pampers, KC spent $75.6 million for its
Huggies brand. The percentages of advertising through television of these two
companies are very close. From Table 2, it shows that KC has the highest market
shares through 1994 to 1997 and the second place is P&G. Both companies sell

14
their products in stores that account for over 90% of US diapers and training pants
sales.

2) Value priced branded

Drypers Corporation is this category of manufacturer, typically market their products
through grocery stores due to their general lack of national brand name recognition
and less extensive national production and distribution capabilities necessary to
supply large mass merchant and drug stores chains. Therefore, the strategies for this
company are widely ranging from an emphasis on quality and ‘good for money’ to
simply low price.

3) Private label
Paragon Trade Brands, Incorporation and Arquest Incorporation are the two largest
private labels of manufacturers in US. These types of manufacturers typically
emphasis on lower price over quality and product features. Private-label
manufacturers spent little on consumer advertising and marketing, however retailers
often promote their individual private-label brands. Private-labels account for
approximately 16% to 23% of retail dollar sales in 1997 until sales for diapers and
training pants. Private-labels are the most prominent in the drugstores channel.

SWOT Analysis

Strengths:
1. Product Innovation
2. Product diversity
3. 4th largest diaper producer
4. 2nd largest seller of training pants in grocery stores
5. Exclusive private label supplier for Wal-Mart in L.A.
6. Acquisitions and joint ventures in foreign countries
7. Strong cash flow and sales growth
8. Licensed to use Sesame Street characters

15
Weaknesses:
1. Lack of national brand name recognition
2. Less extensive national production distribution capabilities
3. Comparatively less advertising budget
4. No dedicated sales force in U.S.
5. Not present in mass-merchant distribution areas

Opportunity:
1. Increase brand awareness through TV advertising
2. Combine all labels to be under Drypers
3. Increase market share by gaining a presence in mass-merchandisers
4. Pursue international expansion opportunities
5. Expand product lines to include additional consumer products
6. Maximize license agreement with Sesame Street
7. First mover advantage of germ-protection.

Threats:
1. Continual growth of market share by P&G and Kimberly-Clarke
2. Minimal response to television advertising
3. Decline in grocery store sales on diapers and training pants

External environment
Drypers Corporation is the third largest marketer of disposable diapers in the US,
and it has found it necessary to compete against KC and P&G. Drypers has
demonstrated an ability to shift the ground rules of diapers marketing through
product innovation. It is an opportunity to compete with KC and P&G through spend
more money and time on introducing new technology that only belong to Drypers.

16
 The other relevant information is in term of brand positioning map below where it
shows the Drypers Corporation’s offering and image so that it occupies a distinct and
valued place in the target customer’s mind relative to competitive offerings.

Figure 1 : Brand Positioning Map

Premium-Quality

Huggies
Drypers
Pampers

Value-Price High-Price

Private
Label
Brands

Lower-Quality

According to the brand positioning map above, it shows that Drypers Corporation is the
only one dominated the market in offering the premium-quality product with the value-
priced. Besides, Kimberly-Clark and Procter & Gamble dominated the market of
premium-quality product with the high-priced while Private Label Brands offers the lower-
quality product with the value-priced.

Furthermore, the information about the competitors analysis will helps Drypers
Corporation to demonstrate that the company has a realistic understanding of who its
major competitors are and what are their marketing strategies.

17
 Table 3 : 1997 Media Advertising ($ Million)

Manufacturer Brand TV Print TOTAL Per Share

Point
Kimberly- Huggies 57.2 18.5 75.6 1.835
Clark
Procter & Pampers 52.8 16.8 69.6 1.846
Gamble
Drypers Corp. Drypers NA 3.219 3.219 1.038

Table 3 shows that the competitors of Drypers Corporation spend too much on the
advertising expenditure in 1997. In term of per share point, Kimberly-Clark and Procter &
Gamble more high compared to Drypers Corporation where it shows that the company
should spend more in advertising to gain more per share point against the competitors.

Refer to the Table 3 below, in term of distribution coverage in 1997, the unit share and
dollar share of grocery stores is lower compared to drugstores where Drypers
Corporation’s competitors are in this distribution channel. The best chosen of distribution
is vital so that the company may compete in the market and able to promote their
products to the consumers.

Table 4 : Distribution Coverage, 1997

Distribution Channel Unit Share (%) Dollar Share (%)

Grocery Stores 23 15.9

Drug Stores 31.3 21.7

18
Mass Merchandisers 21.5 15.3

Other than that, the other relevant information that Drypers Corpration should consider is
the company analysis where it provides the details of the company’s strengths and
marketing strategies, which enable the company to achieve their objectives. As we can
see, the graph below shows Drypers Corporation in term of Net Profit Margin (NPM). It
indicates that in 1995, the company earns negative NPM compared to the next two
years (1996-1997) where it shows the increase in NPM of 0.6% for both years.

Figure 2 : Drypers Net Profit Margins, 1995-1997

Other than that, in term of customer analysis, Drypers Corporation should describe the

0
1995 1996 1997
-2

-4 Net Profit Margin

-6

-8

-10

characteristics of customers expected to buy their products. From the Figure 3, it shows
the increasing trends in the US disposable diapers and training pants market from 1994
to 1997. This relevant information will help Drypers Corporation to make the decision to
spend upwards of $10 million in television advertising because the purchasing trends by
the consumers always constant hopefully in 1998.

Figure 3 : Trends in the U.S Disposable Diaper & Training Pants Market

4000
3500
3000
2500
2000 Diapers
1500 Training Pants
1000
500
0
1994 1995 1996 1997

19
4) IDENTIFY THE BEST ALTERNATIVES

Previously we discussed on the situation analysis of Drypers Corporation in

operating their business and considering the major problem projected in the case,
the uncertainties, their strengths and weaknesses also their external opportunities
and threats. After considering their situational condition, our group come up with two
distinct variables in which is either Drypers Corporation pursues on National
Television Advertising Campaign in order to improve their sales for the year 1998
onwards or do not pursue on the National Television Advertising Campaign.

Therefore, in this fourth step, which is identifying the best alternative, we will look at
each alternative’s advantages and disadvantages.

Optional alternatives;

A. Do nothing & rejecting the 10 million dollar budget:

Advantages:
a. Don't take the risk of not recovering the 10 million dollar expense.
b. Had never used T.V. advertising, so there is a chance that they can do it
incorrectly.
c. Low cost required

Disadvantages:
a. Continue to reach only 33.8% of the Market.
b. Staying in a market that has been declining over time
c. Limited market penetrated
d. Not pro-active
e. Solves nothing

Quantitative Implications:
An increase of 10 million dollars in their advertising budget will require Drypers to
have an increase of sales of 17.7 %. This seems like a tall order because Kimberly-

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Clark, Procter, and Gamble have a Television budget six times, of what Drypers is
proposing.

B. Accepting the 10 million dollar advertising budget.

Advantages:
a. Increase brand awareness of consumers and mass merchandisers.
b. Will increase distribution coverage.
c. Facilitate entrance into Mass Merchandise and Drugstore Markets.
d. Potential to reach a much wider audience
e. Continuous opportunity to capture new consumers
f. Brand loyalty to Drypers
g. Stress their innovative product line
h. Stress their differentiated products

Disadvantages:
a. Risk of sales not increasing enough to cover the 10 million dollar expense.
b. Tripling the current advertising expenditures.
c. High cost
d. Failure can be harmful
e. Brand loyalty of consumers to other products

If Drypers Corporation opts to continue on doing National Television Coverage, it will

be an advantage for them in creating awareness and brand recognition among their
consumers. This is especially true since Drypers is already available in grocery
stores and by doing television advertising they will be able to remind their consumers
that their products is also of premium quality at even lower price than their
competitors. When consumers are aware of their products, then they will tend to
purchase Drypers in which will increase their sales. This is in relating to the
relationship of advertising expenditure and their sales.

As we can see in the case that Kimberly Clark and Procter & Gamble have spent a
lot in advertising which are $75.6 million and $69.6 million dollars respectively and as

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a result their able to capture 41.2% and 37.7% of disposable diapers and training
pants market share in the year 1997.

Best Alternatives
Drypers must to spend $10 million dollars on national television advertising by
stressing the differentiated product strategy. Besides, they could use the licensed
agreement through Sesame Street trademarks.

5) DEVELOP A PLAN FOR IMPLEMENTING THE CHOSEN ALTERNATIVES

Marketing strategy to be planned:

• Ensure the advertising through television get the recognition among the
customers.
• To refer the expertise in order to ensure the advertising is effective.
• Research advertisement placement- Night (prime time)

After selecting the best alternative, we now develop a plan for implementing the
alternative. In term of implementing it, we decided to use the objective-task-approach
in budgeting. In budgeting, we need to fulfill three steps:

i) Defining the communication objectives

The major objective is to create brand awareness and recognition to their
consumers. After brand awareness is achieved then it will decrease the
promotion-driven sales, increase the demand, and establish relationship
with the mass merchandisers.

ii) Identifying the tasks needed to attain the objectives.

The tasks needed in order to attain the objectives are to advertise their
brand in the national television around the United States. The
advertisement can stress on the benefits of Drypers products as their
positioning to their consumers.

Other than that, Drypers will be doing the blitz promotion strategy
whereby they will only advertise their brand for a short time period. That is

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 they will aggressively advertise their brand in the first six months of 1998.
Then they can focus on their existing promotional activities and their
distribution as previously implemented.

iii) Estimated costs associated with the performance of these tasks.

The estimated costs that will incur in implementing the tasks would be
33% increase from previous budget. In which it will incur $10 million
expenditure for the broadcast campaign.

6) EVALUATE THE DECISION AND DECISION PROCESS

After the decision has been made, then we evaluate of whether the decision will work or
not. As for our group, we believe the advertising campaign will work based on four
factors that are:

i) There is an increasing demand for diapers and training pants in the

market.
First, there is an increasing trend in the consumption pattern of disposable
diapers and training pants from the year 1994 until 1997. This will be a
good opportunity for them to start to advertise and remind the consumers
that their products also have benefits.

ii) Unique products offering.

Other than that, Drypers able to gain competitive advantage in being the
first to introduce anti leakage, absorbency, diaper fit and skin treatment
diapers such as diapers with nature baking soda to address odour control
and diapers with Aloe Vera to moistened skin.

iii) Special attribute and benefits.

Furthermore, Drypers also acquired a major licensing with Sesame Streets
trademarks and characters in their packaging, products themselves and
other usage. This will be an advantage in attracting the consumers and
appeal in advertisements.

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 iv) Strong emotional buying motives.
Finally yet importantly, Drypers has strong consumer buing motives that are
consumers are very health conscience whereby they will seek for products
that will give no harm for their children and protect them from rashes and
skin illness. This is especially true as they introduce diapers with Aloe Vera
and Nature Baking Soda. On top of that, in the year 1998 they planned to
introduce Drypers Supreme Germ Guard Liner that is antibacterial diapers
and training pants.

In the short time period, this campaign may be effective in creating awareness and
brand recognition. In addition, it will increase their market share as this is proven that the
more a company spends on advertising the more market share it will be. This is more of
an investment in increasing their sales and company growth. However, this may not be
much effective in the end if they cannot continually advertise their products in the
television. This is because customers may switch to another brand that is always on air
in the television. Therefore the have to spend or invest more on advertising through
television in the future years.

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RECOMMENDATION

• To broaden the international market instead of focusing in Latin America only

such as Argentina, Mexico, and Brazil.
• To reduce the promotion cost in terms of printing advertising and coupon, in
order to focus more on television advertising.

Recommendation for the year 1999

It is difficult to state whether 1999 TV campaign is recommended because the definite

outcomes of the 1998 campaign are not available. Two issues have to be discussed
here: Ad recognition and effectiveness of the Ad. Without a doubt, TV ads have higher
percentage of recognition than paper ads do. However if the ad is designed incorrectly,
the campaign will target the wrong audience and the ad, though widely recognized, will
have little effect on the sales increase.

It is in cases where recognition turns out to be low that this measure is especially helpful
for diagnosis. If people do not recognize the ad after a few weeks on air, the advertiser
can be certain there is something very wrong-because it is such an easy test. In reality
you will find that low recognition figures and 'wallpaper' ads like this are rare--for TV at
least. Most often, 70 to 90 per cent of people who have been exposed to an ad a
number of times in a TV campaign do recognize they have seen it--unless there is
something very wrong with the ad. A high figure shows that the ad is capturing enough
attention to get noticed and may give the advertiser warm feelings--but keep it in
perspective. It is important to emphasize that this reveals nothing about the strength of
any mental connections that have been established. This is because ad recognition is, in
a sense, an 'easy' test, merely testing that a connection is there. It confirms that the ad
execution does have some representation in consumers' memory networks. It has been
seen.

Establishing this is one thing. Measuring the strength of the mental connections within
the network is another. At the same time, it is not clear how successful the 1998
campaign was and therefore it is unclear what recommendations to provide for the

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1999’s one. The rule is if 1998 campaign proves to be successful, the 1999 one should
be organized as well.

CONCLUSION

To conclude, the decision chosen will give benefits to Drypers because in this industry
there are many competitors and frequent places to purchase disposable diapers and
training pants. These types of companies must implement an advertising approach in
order to sell their products rather than a personal selling strategy. Manufacturers
advertising approaches can consist of several types of messages to the consumer that
are typically combined to create their selling strategy. Quality, price, features and
benefits are the most common attributes assigned to advertising strategies. These
attributes also determine which market segment a company will primarily focus on.

Drypers uses a high quality low price strategy. This market segment is typically assigned
to mothers that are more consciences of price. What separates Drypers from their
competitors is their ability to sell at low prices while consistently providing quality to its
customer and low prices to the retailers. Drypers considers their differentiation strategy
to be primarily based on features of their disposable diaper and training pants. Most of
their competitors focus their marketing strategies based on premium branded disposable
diapers and training pants.

There is a definite advertising opportunity for Drypers. The average consumer is most
easily persuaded in the realms of broadcast television. People tend to perceive products
that are advertised on television good rather than printed advertising. Therefore, Drypers
should adopt the national television advertising to attract more customers thus, leading
to increase their profits in long term period of time.

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