The key issue is the collaboration of Kimberly-Clark (KC) and Wal-Mart which threatens the current partnership Procter & Gamble (P&G) has with Wal-Mart as well as P&G’s leading position in the health and beauty line. P&G and Wal-Mart already had an established partnership where they agreed on a just-in-time ordering and delivery system specifically for disposable diapers in which through technological means the Wal-Mart stores and P&G factories would be linked. This partnership proved to be beneficial to both – Wal-Mart was able to reduced stock-outs and inventory levels whereas P&G gained status of being the preferred supplier and having greater shelf space & end-aisle displays.

However, now KC was manufacturing training pants for Wal-Mart at a lower price than P&G and was to be sold under the private-label The Great Value. Since KC was offering diapers at a lower price this threatened P&G as it would be a direct hit on their sales which is $3B from Wal-Mart alone. Overall, because of KC entering into the picture, KC is threatening P&G’s
(a) partnership with Wal-Mart, (b) leading position in the heath and beauty line, and (c) sales

Wal-Mart also identified 3 elements they want to continually focus on: (1) the refinement of information system, (2) maintain tight relationships with vendors, and (3) further develop their private-label business and use the money generated to reduce the prices of national brands.

How should P&G respond to KC’s decision to supply Wal-Mart with private-label diapers?
Firstly, P&G should continue to strengthen its partnership with Wal-Mart as the two of the elements Wal-Mart is geared to focus on has already been established with P&G such as the satellite-based electronic-data interchange system which linked Wal-Mart and P&G together which led to simplified accounts receivable function. Also, an enhanced scanning system at checkout was developed. Finally, there is direct relationship with P&G and this relationship is clearly positive as Wal-Mart was willing to provide P&G with the best shelf-space and end-aisle displays. P&G should continue to strengthen the relationship of Wal-Mart by keeping Wal-Mart’s three focus points in mind. To further and strengthen this relationship P&G should provide Wal-Mart with their own diaper line to place in the Wal-Mart superstores. However, before P&G does that, P&G will need to invest in how they can achieve this and at the same time remain the leading brand as they go head-to-head in competition with KC who is currently in the process of manufacturing training pants for Wal-Mart.

P&G’s response to KC should be to enhance their product to the best they can. They can do this in the following ways:
1) Invest in Research & Development (R&D): from the case analysis it seems P&G has a good grasp on the benefits that can arise from technology. P&G’s should look into providing additional related hygiene products to the diaper such as baby wipes that have an unique advantage such as wipes that are flushable. Investment in determining how the diaper can be best built to avoid leakage and perhaps even incorporate a lightly scented lining similar to how the technology is today towards female hygiene napkins may seem small but have great benefits.
2) Packaging: reducing the size of the diapers yet still be utilized to maximum comfort can help provide the diapers in better packaging in which more diapers can fit in one package. Further, P&G should look into providing a unique package. We know that KC is providing training pants comparable to their Huggies Pull-Ups so P&G can use this as an advantage to provide a package that will stand out and appeal to consumers.
3) Marketing:
(a) P&G first needs to understand the market segment. Diapers will be put on babies by parents (likely moms). P&G needs to understand that more women are working and thus place more value on time and employing convenient methods. Further, as the world gets busy we are placing a greater importance on hygiene. With this in mind marketing should be aimed towards parents but the advertisement itself should be of a happy, cute, and satisfied baby in a diaper.
(b) Diapers are hygiene products for babies so a good place to advertise is at hospitals. The idea is to remain in the eye of the consumer and once this is achieved if a consumer sees P&G’s diapers and diaper accessories at Wal-Mart they will have a moment to refer to when they used this product or just recall the exposure they received of P&G diapers. Normally people are more inclined to follow doctor’s orders in terms of health and if hospitals are promoting the product, there is no better reference than that. This will increase the rank/quality of P&G’s product but also increase the accessibility for mothers.
(c) Related to (b) P&G should get their diapers approved by nurses and doctors that their diaper is rash-proof. In other words, reassure the audience that the product is in fact tested by professionals and does the job. Once it if approved this should appear on the package that it has been tested by doctors/nurses/dermatologists (the appropriate profession).
(d) In marketing P&G’s product there should be emphasis on how to dispose of the diaper to appeal to the environmentalists who are concerned with any hazards which may be involved. Although it is babies and moms who are most concerned with diapers we do not want to anger other groups in the process.
(e) All consumers want high quality and low prices. P&G will provide the quality from the R&D operations but P&G should also look into providing different types of versions of diapers with different prices to appeal to a broader financial audience. When a couple has a baby the finances are already high so it is understandable that some of the target audience would be price-sensitive. For example, P&G can provide diapers alone in different sizes (12 diapers in one; 24 diapers in one) or provide diapers along with additional hygiene accessories such as the flushable wipes.