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In this case of Procter and Gamble (P&G) and Wal-Mart’s partnership, the main issue seemed to be caused by a third-part company’s collaboration with Wal-Mart which interfered the healthy partnership between P&G and Wal-Mart, also threatened P&G’s leading position in the diaper market. P&G’s diaper brand – Pampers has been the industrial leader in the relevant segment for years. P&G has been developing a long-established partnership with Wal-Mart based on a just-in-time ordering and delivery system for disposable diapers featured with the electronic-data-interchange system linking Wal-Mart vendors with P&G factories.
The result of this collaboration created a win-win situation which let Wal-Mart reduced both stock-outs and inventory levels and P&G gained the status of a preferred supplier with greater shelf space. But now another well-known diaper manufacturer Kimberly-Clark Corporation, which had around 20 percent of the diaper market share, has decided to supply Wal-Mart’s private-label brand – the Great Value.
This interfering of Kimberly-Clark’s collaboration with Wal-Mart would cause low priced diaper products swarm into the market which will have a strong impact on the sales of P&G’s product in this segment.
And whatever P&G was going to do to save its market share from this impact would certainly affect the partnership between Wal-Mart and itself. Before raising any assumptions to solve this crisis, let’s first take a look at the market situation back in 1993. Wal-Mart was one of the first world-wide supermarket retailers who started its own private-label brand.
At the time, the general population didn’t really have a clear idea of what private-label brand was, especially when they’re displayed on the same shelves beside those “name” brands.
Consumers probably didn’t even know there was such thing called private-label, no need to mention that they couldn’t possibly distinguish the difference between these brands. So the concern of whether or not buying the product from a specific brand came down to the price of the product. It was clearly stated in the case that the products from those private-label brands can be 20 percent, or in some cases even 30 to 40 percent less than first-tier national brands.
No matter what strategies P&G would use, it has to be related to a series of price adjustments to absorb the impact of the entering of low priced private-label product – in this case, Wal-Mart’s private-label diapers supplied by Kimberly Clark. Although the case didn’t provide any alternative solutions to the situation, in my opinion there were two main options to resolve the problem. The first option is to lower the price of P&G’s diaper product to better compete with Wal-Mart’s private-label. The second option is to mainly maintain or slightly raise the price to establish P&G’s diaper brand – Pampers as a premium brand in the segment.
As I mentioned before, when the concern came down to the price, it seems that it’s inevitable for P&G to reduce the price of their diapers in order to stay in the leading position of the segment. Although P&G has all the rights and reasons to market Pampers as a premium brand with the high quality diapers and the intimate community service and relationships they’ve developed over years by marketing campaigns. However the research data from Huggies Every Little Bottom Study – Diaper need in U. S. and Canada* shows that one fifth of the North American mothers are struggling to provide diapers for their babies.
It is obvious that affordability is a crucial criterion when people are making the decision of whether or not to purchase the diapers from a specific brand. Furthermore, unfortunately to P&G, the manufacturer of Wal-Mart’s private-label diaper – Kimberly-Clark is not an anonymous brand. It is also one of the biggest health care manufacturers which also has 20 percent share in the diaper market. It is fair to say that the quality of Wal-Mart’s private-label diapers provided by Kimberly-Clark will be as good as what P&G’s Pampers can possibly provide to the consumers; at least it will not be far off.
Hence, a significant price gap would be Wal-Mart’s private-label diaper way more competitive than P&G’s Pampers diaper in this free market. It is worth to mention that Wal-Mart has the ultimate power of their shelf placement. Although Wal-Mart probably would not reduce P&G’s shelf space for their own private-label regarding to the healthy partnership between these two companies, it is hard to say that whether or not Wal-Mart would emplace their private-label diapers aside P&G’s on the shelves.
If so, this could potentially further reduce P&G’s sales because this arrangement would exaggerate the price difference when consumers are comparing the two brands side by side. Based on the research data, I believe that at least one fifth of the consumers would make the decision based on their financial status and choose the relatively cheaper brand. In conclusion, based on these facts and concerns listed above, it seems to be more reasonable for P&G to reduce the price of their Pampers diaper in order to compete better in the segment.
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