Marketing Decision Making and Case Analysis

December 15, 2011

Drypers Corporation – National Television Advertising Campaign

Marketing Decision Making and Case Analysis Drypers Corporation – National Television Advertising Campaign

1.0

Introduction In attempting to the case study of Drypers Corporation, our group used the „DECIDE‟ decision making process model. The six steps used are the systematic

decision-making process. The first step is Define the problem which is the most important and crucial step. Defining a wrong problem leads to making wrong decision. Second step is Enumerate the decision factors. In this step, there are two sets of decision factors that must be enumerated which are 1) alternative courses of action and 2) uncertainties in the competitive environment The third step is Consider relevant information. This is where all relevant information that relates to the alternatives identified such as characteristics of the industry, consumers, competitive environment and the organization were being discussed and analyzed. The next fourth step is Identify the best alternative. From the alternatives identified in step 2, this is where the decision to select the best alternative being made based on the relevant information analysis. The fifth step is consider the important step once the best alternative has been identified; Develop a plan for implementing the chosen alternative. Implementation plan can be developed through the marketing plan. The last step or the sixth step is Evaluate the decision and the decision process. This is the part when evaluation being made as whether the decision has actually been

1

December 15, 2011


made or not and was the decision appropriate given the situation identified in the case setting. 2.0

Case Summary Drypers Corporation is a producer and marketer of premium-quality, value-priced disposable baby diapers and training pants. The products are sold under the Drypers brand name in the United States and internationally. In late 1997, senior executives at Drypers Corporation were discussing on the merits of spending upwards of $10 million on national television advertising in 1998 for its Drypers brand of disposable diapers. However, the company had not used television advertising in its 10-year history and spending $10 million expenditure represented a 33% increase in the company‟s combined advertising and

promotion budget. In 1997, the advertising and promotion was budgeted at about $30 million.

2

December 15, 2011


made or not and was the decision appropriate given the situation identified in the case setting. 2.0

Case Summary Drypers Corporation is a producer and marketer of premium-quality, value-priced disposable baby diapers and training pants. The products are sold under the Drypers brand name in the United States and internationally. In late 1997, senior executives at Drypers Corporation were discussing on the merits of spending upwards of $10 million on national television advertising in 1998 for its Drypers brand of disposable diapers. However, the company had not used television advertising in its 10-year history and spending $10 million expenditure represented a 33% increase in the company‟s combined advertising and

promotion budget. In 1997, the advertising and promotion was budgeted at about $30 million.

2

December 15, 2011

3.0


Identification of the strategic issues and problem 3.1

Define the problem The problem statement for the case is should Drypers Corporation

proceed to spend $10 million for National Television Advertising Campaign for Drypers brand of disposable diapers? More specific, the problem is defined as; how can we build brand recognition (objective) and increase short and long term sales and profit (success measure) with significantly lower advertising and promotion expenditures and lack of television advertisement know-how (constraints). The issues discussed by the management in Drypers is basically regarding with the communication strategy. Communication is important in disseminating the offerings to selected market. National television advertising campaign is one of the strategies in communicating an offering to the public. The marketing objective of Drypers is to build and increase brand recognition among consumers. In order to measure the success of the objective, Drypers need to look at the impact on sales and profit; increase in short and long term sales and profit. However, in order to achieve that, Drypers has its own constraints which are the budget for the advertising and promotion is low as compared to its competitors and lack of television advertising know-how. Drypers has no experience in launching the national television advertising campaign, and it will be the first one if they did it.

3

December 15, 2011

3.2


Enumerate the decision factors Two sets of decision factors are the alternative courses of action and

uncertainties in the competitive environment. In the case of Drypers, the alternative courses of action are as below;

Alternative 1 •

Alternative 2

Spend $10 million budget for National Television Advertising Campaign

•

Reject $10 million budget for National Television Advertising Campaign

Figure 1.0 - The alternative courses of action

Based on Figure 1.0, there are two alternatives in the case of Drypers Corporation. The first one is for the company to spend $10 million on the initial national television advertising campaign. The other alternative is to reject the $10 million budget and did not proceed with the television advertising campaign. The decision making will be evolve around these two alternatives. Each alternative has its own advantages and disadvantages. If Drypers choose Alternative 1 or Alternative 2, the advantages and disadvantages will be as follow: Alternative 1 Advantages

1. Increase in brand recognition and awareness 2. Boost demand 3. Increase penetration of grocery retail store 4

Alternative 2

1. No additional cost for advertising and promotion

December 15, 2011

Disadvantages


4. Moving from higher-cost, promotion driven sales to brand-driven sales 1. Lack of experience and know-how on television advertising 2. Increase in cost of advertising and promotion

1. Remain or loss existing market share 2. Low level of Drypers brand awareness 3. Decrease in sales

Table 1.0 – Advantages and disadvantages of alternatives

5

December 15, 2011


Another factor to be enumerated is the uncontrollable factor; uncertainties in competitive environment. One uncertainty identified for Drypers case is the action of competitors. If Drypers spend $10 million on the television advertising, the competitors (Procter & Gamble and Kimberly Clark) might aggressively advertise the counter-advertise aiming to discrediting Drypers. On the other hand, if Drypers did not do the television advertising, the company might lose its market share to the competitors. This is because the Procter & Gamble (Pampers) and Kimberly Clark (Huggies) spent $52.8 and $57.2 million respectively on the television advertising in 1997. The huge amount of dollar spent on the media advertising shows an aggressive promotional activity by the two manufacturers. It is a threat to Drypers due to general lack of national brandname recognition and less extensive national production and distribution capabilities.

Uncontrollable decision factors

Aggressive advertising by competitor

Passive advertising (maintain)

- Procter & Gamble and Kimberly Clark might counter-advertise to discredit Drypers

- Procter & Gamble and Kimberly Clark might maintain its current level of advertising

Figure 2.0 - The uncontrollable decision factors

6

December 15, 2011

4.0


Analysis and evaluation 4.1

Consider relevant information The third step in the decision making process is the consideration of

relevant information. The relevant information can be divided into two categories which are the qualitative information and quantitative information. For the case of Drypers, both the information is important in deriving a decision in marketing. Below are the breakdowns of information required:

Qualitative - Situation Analysis • • • • •

SWOT analysis Industry analysis Competitor analysis Company analysis Customer analysis

Quantitative - Financial Analysis • •

Market trend of disposable diapers and training pants in US Pro-forma income statement for the year 1998 Figure 3.0 – Consider relevant information

7

December 15, 2011


4.1.1 SWOT analysis Table 2.0 below shows the external and internal forces that influence the market opportunities for Drypers. The SWOT analysis summarized the strengths, weaknesses, opportunities and threats that Drypers is currently facing.

Internal Factors

Strengths

Weaknesses

1. Offerings

Value-priced disposable baby diapers & training pants with premium quality

Narrow product line

2. Brands

Conversion to one common package design and brand name - Drypers

Lack of national brand name recognition

3. Distribution

Major distribution in grocery store market

Less widespread distribution in mass merchandise and drugstore chain channel

4. Price

Retail prices at 40% lower than premium price brand

5. Communication (advertisement, promotion and sales)

Extensive used of print advertising, coupons, sampling & in-store promotion

8

-

Lack of communication media that appeal to multiple senses – sight, sound, color and movement (e.g. television advertisement)

December 15, 2011


6. Manufacturing

Has 9 manufacturing location in US, Brazil, Puerto Rico, Argentina & Mexico

Less extensive national production to supply mass merchants & drugstore s

7. Innovation

Leading in product innovation - Introduction of diapers that focus on skin care, diapers fit, absorbency, & leakage control

-

8. Finance

Strong cash flow

-

Issuance of bonds to refinance debt & finance production capacity

Table 2.0 – Drypers SWOT Chart

External Factors

1. Expansion

Opportunities

Growth opportunities exist at international level (estimated international market $12 billion)

Threats

Modest growth in US disposable diaper market

Opportunity to expend product line 2. Technology

Availability of new technology for enhancing product innovation

9

-

December 15, 2011


-

3. Competition

Extensive competition from competitors The emergence of counter strategy on discrediting by competitors.

4. Strategic alliances

Licensing agreement on trademark & characters of cartoon‟s figure (Sesame

Selective & high requirements of licensing alliances.

Street) 5. Economic

-

International economic uncertainty Rising cost of raw materials.

Table 2.0 – Drypers SWOT Chart (continued)

10

December 15, 2011


4.1.2 Industry analysis Drypers Corporation falls under the disposable and training pants industry. The retail dollar value of unit volume of the U.S. disposable diaper market has recorded modest growth in recent years due to the trend in fewer infants under 30 months of age and diaper improvements in absorbency and leakage control. The retail dollar value of the U.S. disposable diaper market was estimated to be $ 3.93 billion in 1997. The retail dollar value of the training and youth pants market was estimated to be $ 595 million in 1997. Trends in U.S disposable and training pants market are shown below:

1994

1997

1998 (forecast)

Infants (millions): birth to 30 months

10.0

9.7

9.6

Diapers sold (billions of units)

17.2

17.5

17.6

$3,880

$3,930

$3,942

Children (millions): 18 months to 8 years

26.1

26.2

26.2

Training & youth pants sold (millions of units)

970.0

1410.0

1597.2

Training & youth pants sold retail dollar sales (millions)

$458.0

$595.0

$626.1

Diaper retail (millions)

dollar

sales

Table 3.0 – Trends in the US Disposable Diaper and Training Pants Market 11

December 15, 2011


Based on Table 3.0, it is forecasted that the number of infants in 1998 will decrease to 9.6 million and the number of children will remain at 26.2 million. However, the units and dollar sales of both diapers and training pants will experience an increase relatively. Disposable diapers and training pants are distributed principally through grocery stores, drugstores and mass merchants. The retail sales of diapers and training pants are approximately accounted to $ 2 billion for grocery stores. Manufacturers of disposable diapers and training pants are typically grouped into 3 (three) general categories which are premium-priced branded manufacturers, value-priced branded manufacturers and private-label manufacturers. We further analyzed the outside forces affecting the disposable diapers and training pants industry using Porter‟s Five Forces Model. The five forces are

as below: a) Intensity of rivalry There are no exit barriers in this industry. The industry is highly concentrated and the intensity of competition is moderate. The big players in this industry are Procter & Gamble and Kimberly Clark. The players in the industry are facing high fixed cost.

b) Threat of new entrants Disposable diapers industry has a low threat of new entrants. This is due to high setup cost and the need to achieve economies of scale in the industry makes it hard to be penetrated. 12

December 15, 2011


c) Threat of substitutes Basically, the threat of substitutes is low in the industry due to ease and convenience used of disposable diapers keep the use of cloth diapers down.

d) Bargaining power of suppliers The industry is having a medium bargaining power of suppliers. This is due to few large manufacturing suppliers on the raw materials. On the other some of the players such as Kimberly Clark have the ability to produce their own raw materials.

e) Bargaining power of buyers However, in terms of buyers, the bargaining power is high. Brand awareness is extremely important in this industry. This is because buyers are very sensitive to price and the value on each dollar they spend. In fact, nowadays, buyers have become so knowledgeable and they are very informed of the products available in the market.

13


December 15, 2011

4.1.3 Competitor analysis The manufacturers of disposable diapers and training pants are typically grouped into 3 (three) general categories which are premium-priced branded manufacturers,

value-priced

branded

manufacturers

and

private-label

manufacturers. Procter & Gamble and Kimberly Clark are the leading premiumpriced branded manufacturers with their well-known Pampers and Huggies premium brands, respectively. These two are the competitors of Drypers Corporation. Both of them compete on the basis of product quality, product features and benefits, and price. They invest heavily in research and development, and consumer advertising and marketing support for their brands. Below is the breakdown of their media expenditures: 1997 Media Advertising ($ in Millions) Brand

Television

Print

Total

Kimberly-Clerk

Huggies

$57.2

$18.5

$75.6

Procter & Gamble

Pampers

$52.8

$16.8

$69.6

Manufacturer

Table 4.0 – Media expenditures for P&G and KC

From the above table, both of the manufacturers spend huge amount of dollar on media advertising. Kimberly Clark and Procter & Gamble brands have an estimated 78.9% of total U.S. retail dollar sales of disposable diapers and training pants in 1997. Due to their extensive distribution coverage in grocery

14

December 15, 2011


store, mass merchant and drugstore markets, the combined share of these two companies has increased since 1994. 4.1.4 Company analysis Drypers Corporation is a producer and marketer of premium quality, valuepriced disposable baby diapers and training pants typically sold their products under brand name of Drypers. There is a decrease in the company‟s domestic net sales in year 1997 from 86.6% to 66.7%. The company is the sixth‟s world

largest producer of disposable diapers and the third largest marketer of brandname diapers in United States. Drypers is a value-priced branded manufacturer that market its products through grocery stores due to general lack of national brand-name recognition and less extensive national production and distribution capabilities necessary to supply the large mass-merchant and drugstore chains. Instead, Drypers rely on in store promotions and couponing, often using local or regional print advertising and cooperative advertising and promotion programs with retailers. The company has recorded a significant improvement in sales and profitability since 1995. For the purpose of this case, we have forecasted the sales and profit of Drypers for the year of 1998 through pro-forma income statement. Based on Table 5.0, the projected net sales of Drypers in 1998 will be $345.3 million. The net income/ profit will total to $22.9 million, increase from the year 1997 (by 95%). However, in 1997, the net income was affected by the extraordinary item.

15

December 15, 2011


Table 5.0 - Pro-forma Income Statement for year 1995 - 1998 (in millions)

1995

1996

1997

1998

Net sales

163.9

207.0

287.0

345.3

(-) COGS

114.1

126.1

175.5

202.3

Gross profit

49.8

80.9

111.5

143.0

(-) Selling, general &

53.7

70.3

90.0

106.7

(-) Unusual expenses

3.2

-

-

-

(-) Restructuring charge

4.3

-

-

-

Operating income (loss)

(11.4)

10.6

21.5

36.3

(-) Interest expense, net

7.6

8.6

9.8

10.7

-

-

0.253

-

Income (loss) before tax

(19.0)

2.0

11.4

25.6

(-) Income tax provision

(3.8)

0.309

2.4

2.7

-

-

(7.8)

-

(15.2)

1.69

1.20

22.9

admin expenses

(-) Other income

(-) Extraordinary item Net income (loss)

16

December 15, 2011


For Drypers, continuing manufacturing and marketing brands of high quality but are sold at lower price is a key to overcome the fierce competition of the diapers and training pants market. Product innovation is also another key to the company‟s success. It may not able to compete with leading brands in terms of pricing but the innovations that are being done has proven to be working for Drypers. National media advertisement such as television advertising is also one of the ways by which the Drypers brand will be established nationwide and will be known by most Americans.

4.1.5 Customer analysis The information that will be considered in customer analysis will be target market, behavior factors and customer‟s needs This information will help Drypers to better understand its customers in the market. a) Target market

Drypers Corporation products are for the babies and children. The target market is the infants (babies) and children below age of four. Their mothers, primarily between the ages of 18 and 49, are the niche market who decide on the brand of diapers and training pants and usually make the purchase. b) Behavior factors

The growth of U.S. disposable diaper market recorded modest growth in recent years. This is due to an increase in information on reproductive health and family planning. It is forecasted that in year 1998, the number of infants 17

December 15, 2011


decline due to improved family planning. Furthermore, the improvements in absorbency and leakage control for diapers and training pants also contributed to the modest growth. In terms of purchasing behavior, the customers are at the stage of preference of buying process. It means that they are very well informed on what the product is but are looking at which brand they prefer. In considering the brand preferences, the customers will look into the information on price, quality, featured values, benefits and convenience of accessibility of the product. c)

Customer’s

needs

The customers or consumers are in constant look for disposable and training pants which are high in quality but good value for their money. So, as a company, they should consider what the needs of the markets are and try to meet their needs. Even though it is expected that infant birth is declining, the diaper units and dollars sales are still on an increasing trend (1997 – 17.5 billion units sold = $3.9 billion retail sales). This is because the demand for disposable diapers is still high due to the product features that are handy have made mothers‟ life easier as compared to the use of cloth diaper.

18

December 15, 2011

4.2


Identify the best alternative A framework in identifying the best alternative is the decision analysis. A

decision tree framework needs to be developed. In the case of Drypers, the decision analysis tree is as below; considering the actions (alternatives) that could be taken by the company, the potential response from competitors and the outcomes.

Aggressive advertising A1 - Spend $10 million for national television advertising Passive advertising

Aggressive advertising A2- Do not spend $10 million for national television advertising Passive advertising

Estimated sales $330 million




Figure 4.0 – Drypers Decision Tree

Based on the decision tree, there are two alternatives available; 1. Spend $10 million on national television advertising or 2. Do not spend the $10 million. Each alternatives lead to two responses from competitors (Procter & Gamble and Kimberly Clark) which are the uncontrollable decision factors of aggressive and passive advertising. Each response will then lead to the outcomes. There are 19

December 15, 2011


four outcomes based on the two responses under each alternative. In the case of Drypers, the outcomes are in the form of estimated sales. For example, if Drypers chose to spend the $10 million and the competitor responded by aggressively advertise to discredit Drypers, the estimated sales will be $330 million. In order to derive to a decision on which is the best alternative, we will calculate the difference between the two outcomes under one alternative. The calculation is as below: Alternative 1: the difference between estimated sales under aggressive and passive advertising Difference

=

($345 - $330) million

=

$15 million

Alternative 2: the difference between estimated sales under aggressive and passive advertising Difference

=

($320 - $267) million

=

$53 million

From the above calculation, we can see that alternative 1 is better than alternative 2. This is because the difference is small under alternative 1. In alternative 1, even in the worst case scenario, if the competitors aggressively advertise to make it hard for Drypers, the loss of sales is only about $15 million as compared to alternative 2 which is $53 million (huge loss). Therefore, we 20

December 15, 2011


choose alternative 1 (A1) meaning to say Drypers Corporation will spend $10 million on national television advertising for disposable diapers under brand name Drypers for the first time in its history. 5.0

Recommendations 5.1

Develop an implementation plan of chosen alternative

We developed a marketing strategy based on the chosen alternative for Drypers Corporation. Drypers Corporation‟s marketing strategy will comprised of the following aspects as it faces a new and challenging event in the promotion of its flagship brand, Drypers, in the United States.

21

December 15, 2011


Drypers Marketing Plan for the year 1998

I.

Mission Drypers Corporation is a manufacturer of diapers and training pants that is known for premium-quality value-priced brand. It is the corporation‟s mission to establish one brand (Drypers) for the diaper market that will be known nationally and worldwide and to challenge leading competitors.

II.

Marketing objectives The following are the objectives of the company in terms of its marketing aspects: 

To increase brand awareness/ recognition for Drypers as a national brand that stands for quality and innovation in order to boost demand



To reduce dependence on direct promotional spending by moving away from higher-cost, promotion driven sales to brand-driven sales



To increase penetration of grocery outlets as well as in mass merchants and chains of drugstores

III.

Financial objective The following is the company‟s financial objective: As a result of the national television advertisement that will be done in the U.S., the financial objective of the company is to increase sales, thereby increase in profit in the year 1998.

22

December 15, 2011

IV.


Target market The consumer for diaper is infants or babies. Specifically, Drypers Corporation target market are mothers age 18 to 49 years old who have babies aged 4 years and below because they are the one who make decision in buying the product.

V.

Product positioning Drypers Corporation will continue to provide premium-quality diapers and training pants at lower prices (value-priced) at the same continuing to be the first in the market in terms of product innovation and differentiation.

VI.

Product differentiation Drypers differentiates its product through innovation of Drypers with Aloe Vera, Drypers with Natural Baking Soda, and value-added features to training pants, including a one-piece design fit to make them look more like real underwear. In addition, Drypers will include antibacterial treatment as one of the features for product differentiation.

VII.

Strategies The corporation will work on the following strategies to attain its objectives: 

Drypers will continue doing product innovations so that Drypers brand will always be differentiated from the rest in the market



Offer branded products to consumers which the corporation regards as “Everyday Value”

23

December 15, 2011 


Another strategy will be to continue pursuing international market expansion



Add up to the existing product lines that will include additional consumer products



Drypers will provide higher-margin products for retailers.



Adopt pull communication strategies in building brand awareness of Drypers in order to penetrate grocery stores and mass merchants

VIII.

Marketing program The company will employ the following marketing program 

Product strategy – Drypers product (diapers) will focus on skin care, in addition to diaper fit, absorbency, and leakage control. The product will have value-added features such as aloe vera for skin smoothing treatment and natural baking soda for odor control. In September 1998, Drypers will introduce Drypers Supreme with Germ Guard Liner (which include antibacterial treatment).



Price strategy - Drypers will continue delivers on its value proposition with retail prices that are below 40% from premium-priced brands



Place strategy – Drypers will break into mass merchants by getting its products on shelves in Wal-Mart and Target. Distribution among mass merchants and drugstore chains will be increased and distribution among

24

December 15, 2011


grocery stores will be maintained in order for its products to reach consumers.



Promotion strategy – Main focus on promotional strategy will be the national television advertising campaign. The strategy to be adopted is pull communication strategy whereby Drypers seeks to create initial interest among potential consumers, who in turn will demand the offerings from intermediaries (pulling the offering through marketing channels). Television advertising will build consumer awareness on Drypers as a national brand thus, boosting demand that will increase penetration in grocery

outlets.

Increased

grocery

penetration

will increase

the

penetration in mass merchants. This is where the pull effects will take place.

The national television advertising campaign will run on the first two quarters (six months) in year 1998. The advertisement will be a 30 seconds commercial that will be aired on prime time. In line with that, Drypers will continue its existing promotional programs such as advertising in parent-oriented magazines, regular places coupons in daily newspapers, direct mail, and in store promotions.

25

December 15, 2011

IX.


Marketing budget The national television advertising will move the expenditure budget upwards by $10 million. However, in the second half of 1998, total advertising and promotion costs will be reduce as a percentage of sales to pre-advertising levels.

X.

Pro-forma income statement for the year 1998 Net sales

345.3 (million)

(-) COGS

202.3

Gross profit

143.0

Selling, general & admin expenses

106.7

Operating income

36.3

(-) Interest expense, net

10.7

Income before tax

25.6

(-) Income tax provision

2.7

Net income

22.9

It is forecasted that sales will increase to $345.3 million in the year 1998 due to additional spending of $10 million on television advertising. This will contribute to net income of about 22.9 million for Drypers Corporation. In addition, an increase in sales of Drypers will continue making the company grows stronger and have a good placing in the market share.

26

December 15, 2011

5.2


Evaluation and control Through the marketing plan developed, Drypers has strategically defined its marketing outlook for both the company and for the national television advertising campaign for the year 1998. The corporate mission and objectives have been projected and the strategies in achieving the objectives have been defined. In order to guarantee success on the plan, Drypers will need to evaluate the progress towards the objectives in each quarter to determine if the marketing program is working properly and profitably. Drypers need to form a marketing research team to ensure that the television advertising campaign is smoothly run. One of the qualitative researches that can be done initially is to conduct focus group discussions (FGDs) to evaluate the television advertisement. The FGDs will provide the company insights regarding the perception of viewers of the advertisement especially if it is effective or not in terms of establishing the brand name Drypers. Succeeding surveys may also be done on a quarterly basis to gain insights on the effectiveness of the advertisement from a larger number of people.

27

December 15, 2011

6.0


Conclusion In conclusion, the decision on Drypers Coporation plan for the year 1998 has been made by choosing the alternative of spending $10 million on the national television advertising campaign. We derived at the conclusion on this alternative due to the reason that Drypers‟ objective is to build brand awareness through advertising and shifting to brand-driven sales strategy. We are able to see that Drypers has the opportunity to go into national advertising because; there is a favorable demand for diapers, the product can be significantly differentiated from its competitors and the product has hidden quality and benefits that can be describe through heavy end-user (consumer) advertising.

28

December 15, 2011


Calculation Pro-forma income Statement for year 1998 (in millions) – using CAGR from year 1995 to 1997

The pro-forma income statement for year 1998 is calculated using the formula of Compound Annual Growth Rate (CAGR) which means the year-over-year growth rate of an

investment

that

over

a

specified

period

of

time

for

the

company.

The compound annual growth rate is calculated by taking the n th root of the total percentage growth rate, where n is the number of years in the period being considered. The formula can be written as follows:

CAGR is not the actual return in reality. It is an imaginary number that describes the rate at which an investment would have grown if it grew at a steady rate. Moreover, CAGR is a way to smooth out the returns which invested by the company.

29

Marketing Decision Making and Case Analysis

Recommend Documents