2 Introduction In 1997, senior executives at Drypers Corporation debated the value of spending upwards of $10 million on a national television advertising campaign. If approved, it would be Drypers first televised campaign in ten years. The campaign would also increase the advertising and promotion budget by 33%. How much money should be spent on a televised ad campaign for disposable diapers: less than $10 million, $10 million, or more than $10 million? In the United States diapers are highly promoted. Drypers advertising has traditionally relied on promotional spending and cooperative merchandising with retailers. Would television advertising increase awareness and brand recognition? Lastly, what impact will the campaign have on short-term and long-term sales? Industry, Competitors, and Consumer Analysis Industry In 1997, the retail dollar value of the disposable diaper market was $3.93 billion. In addition, the training and youth pants market had a retail dollar value of $595 million. These two categories make up a $4.53 billion industry. There are three leading distribution channels in the disposable diaper and training pants industry: grocery stores, drugstores, and mass merchants. Grocery stores lead in percentage of diaper and training pants retail sales with 51.2%. This is approximately $2 billion. Mass merchants hold a retail market share of 39.4%. This is roughly $1.79 billion. Drugstores account for the smallest portion of the three with a retail market share of 9.2%. The total retail value of sales from drugstores is approximately $417 million. Exhibit 1: Retail Distribution Channels Outlet Percent of Retail Sales Retail Dollar Value ($ In Millions) Grocery Stores 51.2% $2,000 Drugstores 39.4% $1,790 Mass Merchants 9.2% $417 Competitors Within the disposable diaper and training pant industry there are three general product categories: Premium-priced branded manufacturers, value-priced branded manufacturers, and private-label manufacturers. Drypers Corporation would be considered a premium-priced brand manufacturer. The two leading competitors in this category are Procter & Gamble with Pampers and Kimberly-Clark with Huggies. In 1997 these companies together made up 78.9% of the total U.S dollar retail sales of disposable diapers and training pants. Both Procter & Gamble and Kimberly-Clark hold high market shares in the various distribution channels. In U.S grocery stores, Kimberly-Clark’s market share is 40.6%. Procter & Gamble holds 34.1%. In the mass merchant and drugstore channel, Kimberly Clark has 41.8% share while Procter & Gamble has a 39.4% share.
I. Background Statement
Drypers Corporation is a producer and marketer of premium-quality; value-priced disposable baby diapers and training pants sold under the Drypers brand name. The company is the world's sixth largest producer of disposable baby diapers and the third largest marketer of brand-name disposable diapers in the U.S.
II. Major Issue/ Problem
Should Drypers Corporation spend 10 million dollars on national television advertising for its Drypers brand disposable diapers?
III. Alternative Courses of Action
A. Rejecting the 10 million dollar budget:
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.
a. Continue to reach only 33.8% of the Market.
b. Staying in a market that has been declining over time.
3. Quantitative Implications:
An increase of 10 million dollars in their advertising budget will require Drypers to have an increase of sales of 17.7 %( Table 1). This seems like a tall order due to the fact that Kimberly-Clark and Procter and Gamble have a Television budget six times of what Drypers is proposing.
B. Accepting the 10 million dollar advertising budget.
a. Should improve Drypers brand awareness.
b. Will increase distribution coverage.
c. Facilitate entrance into Mass Merchandise and Drugstore Markets.
a. Risk of sales not increasing enough to cover the 10 million dollar expense.
b. Tripling the current advertising expenditures.
3. Quantitative Implications:
As of 1997 Drypers has only 3.1% of the total dollar market. This seems to suggest that Procter has a good opportunity for market expansion. Drypers Corporation's 66% distribution coverage in grocery stores, which account for 51.2% of total U.S. diaper and training pant