M-1298-E

Rev. 5/2016

Dodot: The Introduction of a Basic Line in the Iberian Peninsula

This document is an authorized copy for the course "Understanding Your Customers" taught by prof. Mario Capizzani.

In the spring of 2009, the general manager for the Iberian region of Procter & Gamble (P&G) met
with the top management team of Arbora & Ausonia (A&A), the joint venture between P&G and
its Spanish partner dating back to 1989. A&A, which operated as a complete independent entity,
was responsible for the manufacturing and commercialization of P&G’s baby-care, feminine-care
and hygiene products. The purpose of the meeting was to evaluate the progress of the recent
decision by Mercadona (the largest retail chain in the Iberian Peninsula) to significantly reduce
the number of references in most product categories with the objective of lowering prices for
consumers, a shift that promised to revolutionize the retail landscape in Spain.

P&G continued to be the unquestionable worldwide leader in baby- and child-care products.
Kimberly-Clark (K-C), which owned the Huggies franchise, was the only other formidable
worldwide competitor. Pampers was one of P&G’s largest franchises with worldwide sales of
approximately €12 billion. In the Iberian Peninsula, A&A operated in the diaper category with
the brand name Dodot and the company prided itself on being at the forefront of innovation
since the launch of the first disposable diaper in Spain in 1971. A&A overwhelmingly
dominated the nappies, diapers, and pants category in Iberia. However, market share in diapers
had eased in Portugal from 75% to 70% over the past five years, while in Spain the descent
was from 60% to 55% over the previous seven-year period.1 Competitors such as Mercadona,
Carrefour and Pingo Doce wooed consumers with lower-price versions. Now A&A was
considering introducing a brand at a price point just below Huggies Super Seco or 20% below
the price of A&A’s flagship Dodot Etapas brand. The new brand, Dodot Básico, was to be
available only at some supermarket retail chains and discounters, and to receive neither
advertising nor trade marketing support. While the company’s vice president of sales, Victor
Solís, viewed the move favorably, CFO Carlos Fernandez and others were more skeptical and
viewed the strategy as facilitating private label trial.

1 Source: Euromonitor International, trade associations, trade and general press, and casewriter analysis.

This case was prepared by Justyna Gorecka-Pietrucha, Researcher, under the supervision of Professor Mario Capizzani,
as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative
situation. This case is not intended to endorse the company or to serve as a primary source of data regarding the
company. Only public information sources were used by the authors. Some of the information in this document
has been modified or altered for teaching purposes. November 2012. Revised in May 2016.

Copyright © 2012 IESE. To order copies contact IESE Publishing via www.iesep.com. Alternatively, write to iesep@iesep.com
or call +34 932 536 558.
No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any
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Last edited: 5/17/16

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 M-1298-E Dodot: The Introduction of a Basic Line in the Iberian Peninsula

The Iberian Diaper Market

In 2008, approximately 480 million diapers were sold in Portugal and 2.03 billion were sold in
Spain. Typically, a customer would pay between €15 and €27 for a 60 – 160 unit pack of
diapers. Over the past five years, the market’s annual unit growth rate averaged 2.1%. Major
suppliers were A&A, Kimberly-Clark (K-C) and brands from the largest retail distributors such
as Mercadona, El Corte Ingles (ECI) and Carrefour. P&G manufactured and sold only branded
products, whereas the majority of private labels were sourced from one of three suppliers: SCA,
This document is an authorized copy for the course "Understanding Your Customers" taught by prof. Mario Capizzani.

Sofidel and K-C itself. Diapers were mainly distributed through super and hypermarkets (61%
of sales), discount retailers (15%), small grocery retailers and convenience stores (11%), health
& beauty retailers and pharmacies (7.5%) and other stores (5.5%).

Estimates of market share by volume are presented in Table 1.

Table 1
Approximate unit market share at the beginning of 2009

Brand Spain Portugal

Dodot 55% 70%

Huggies 16% 12%
Distribution label 24% 17%
Other 4% 1%

Pampers and Huggies competed in a global battle for dominance of the diaper category.
Huggies’ worldwide sales of €5.5 billion in 2008 made it only half of Pampers’ size.
Furthermore, in Western Europe that market share gap was widening as analysts expected
Pampers’ unit volume to grow at more than 3% vs. less than 1% for Huggies.2 In Spain and
Portugal, Dodot commanded large name recognition, to the point where there was a time in
Spain in which diapers were simply called “Dodoties.” A&A produced annually approximately
one and a half billion diapers in its plant in Alicante, from where it served its entire Iberian
operation. Training pants (imported from other P&G European plants), complemented the
product offering, but diapers constituted approximately 95% of the share of retail sales.
Wipes were the other product complementing the baby-care category.

Private labels as a group had grown sales in Spain at close to 9% a year over the previous
four years, while in Portugal they had grown at over 20% in a similar period, debunking
Huggies to achieve a combined number two market share position. Huggies, nevertheless,
thanks to an intensive promotional strategy, had managed to retain a stable market share
quota in Portugal, while only shedding three percentage points in Spain during the same
period.

2 “Nappies war intensifies in Europe, but Asia is bigger prize,” May 2010, Euromonitor.

2 IESE Business School-University of Navarra

 Dodot: The Introduction of a Basic Line in the Iberian Peninsula M-1298-E

Category Pricing
Dodot’s Etapas brand was the standard for the industry and it represented more than 70% of
all the diapers sold by A&A in 2008. Exhibit 1 shows the average non-discounted retail price
per unit for representative products.

As shown in Exhibit 1, there were four price tiers in the market. Dodot Etapas, the largest
selling brand by far, set the premium brand at €0.26 per unit. A&A’s gross margins for
This document is an authorized copy for the course "Understanding Your Customers" taught by prof. Mario Capizzani.

diapers were estimated to be about 45%. Both A&A and K-C offered super-premium brands,
Dodot Activity and Huggies Super Seco Ultra, targeted at the highest quality shoppers. In
2010, A&A was planning to introduce its most advanced Dodot Activity product, which
would replace cellulose pulp from the diaper core with an absorbent gel material. This
technology would help produce the driest and thinnest diaper on the market (see Exhibit 3b
for promotional material).

Huggies’ flagship brand, Huggies Super Seco, anchored the economy brand at 15% below the
premium tier product. Huggies’ gross margin was believed to be around 25%. Finally, most
distributors’ labels made up the price tier with Mercadona, Carrefour and Hypercor diapers
constituting over two-thirds of the volume share of that price tier. While some of the diapers
in this price group were “branded” products, others were simply sold under the retailer’s
brand (e.g., Carrefour). Most parents easily recognized brands belonging to large supermarket
chains. On average, these “price brands” were priced about 35% – 40% lower than Dodot
Etapas. Dealer percentage margins were typically higher for private label products.3

Consumer Insights
A typical family could expect to spend around €1,500 on disposable diapers by the time a
toddler was potty trained.4 Usage intensity normally decreased as the child evolved and it
typically ranged from seven to twelve diapers per day for small babies to four to eight
diapers per day for toddlers.

Exhibit 2 shows the birth rates and expected fertility rates for Spain and Portugal.

Often supermarket chains offered diaper packs on sale, where the second pack was heavily
discounted, a practice that had intensified with the economic crisis affecting Portugal and
Spain. In some instances the discount was more than 50% off the price of the first pack.
Packs came in multiple unit sizes to accommodate different households’ usage and storage
capacity. This fact made unit price comparison somewhat difficult. In addition, pack sizes
varied among the different supermarket chains. Diaper sizes typically ranged from sizes one
to six depending on the weight of the baby, with sizes three to five constituting the largest
volume of sales.

Dodot advertised heavily, e.g., spending approximately €15 million on diapers, training
pants, and wipes in the Iberian Peninsula in 2008, more than three times what K-C spent on

3 Case writer’s note: For the purpose of calculation in the case analysis, a good approximation is that distributor mark-up on
A&A diapers averaged 15%; other supplier diapers yielded a 20% distributor mark-up.
4 The Organization for Consumers and Users in Spain (OCU) estimated an average of 5,700 diapers per child.

IESE Business School-University of Navarra 3

 M-1298-E Dodot: The Introduction of a Basic Line in the Iberian Peninsula

Huggies. Traditionally, A&A advertising had emphasized its new product innovations and
product benefits. In addition, it ran a partnership with UNICEF on all packs of the Dodot
brand, offering a free tetanus vaccine with each pack sold. Furthermore, P&G invested
heavily in R&D by testing over three million diapers every year on more than 25,000 babies
and infants, an investment that private label brands could not match.

People typically compared diapers based on absorption capacity, skin irritation, leakage, strap
adhesiveness, fit and price. Among these attributes, parents were most concerned with avoiding
This document is an authorized copy for the course "Understanding Your Customers" taught by prof. Mario Capizzani.

diaper rash. A small percentage of households actually bought more than one brand, favoring
extra absorption capacity for night time. Actual differences among diapers were unclear, yet
people in Europe often showed high levels of loyalty to one brand even in tough economic
times. Despite many reviews available on the Internet, independent consumer reports were
difficult to find. A 2008 comparison conducted by a large supermarket chain concluded that
most brands yielded satisfactory results, with the exception of super-premium brands, which
typically yielded very satisfactory results, 5 while a study by the Spanish Organization for
Consumers and Users (OCU) concluded that some private label brands performed as well as
some branded products and in some cases even better.6 Several blogs available online for first-
time parents recommended sampling several brands before committing to one.

The hassle in quality comparison implied that the choice between brands was mostly a matter
of personal preference, brand attachment, and wallet size. Diego Marquez, A&A’s marketing
director for diapers commented that

“the importance of brand name in consumer decision making is still very strong; on the
other hand, if the economic crisis deepens, there might be a growing body of price-
sensitive consumers. In other words, we are likely to see more growth in private label and
promotional activity.”

A&A’s own research on Iberian consumers had shown that 45% of buyers were “Dodot loyals,”
less than 10% were “Huggies loyals”, 30% were samplers, and 15% shopped based on price.

New Dodot Marketing Strategy

Starting in 2010, A&A was planning a major repositioning of its diaper product line. New Dry &
Adapt Technology would result in the introduction of a new Dodot Activity product to be
named “iPañal” (“iFralda” in Portugal). At the same time, the economic situation fostered the
creation of value brands. Altogether, three kinds of diapers would be offered (see Exhibit 3):

1. New Dodot Activity or “iPañal” – to replace the old Activity product in the Super-
premium segment. It would be advertised as the thinnest and driest of all diapers on the
market and positioned as the “the most comfortable for the baby” (see Exhibit 3b). It
would retail at a 25% surplus over the premium Etapas brand and would be priced to the
trade at only a 3% premium over the current Activity product. The new Dodot Activity
would receive heavy advertising support reaching 40% of Dodot’s marketing budget.

5 Consumer Eroski, April 2008, http://revista.consumer.es/web/es/20080401/actualidad/analisis2/72493_2.php.

6 http://www.ocu.org/consumo-familia/nc/consejos/panales-cual-comprar.

4 IESE Business School-University of Navarra

 Dodot: The Introduction of a Basic Line in the Iberian Peninsula M-1298-E

2. Dodot Etapas – would remain the flagship product promoted as standard diapers for
every single stage of a baby’s development. Etapas would continue to receive 60% of
the entire marketing budget.

3. Dodot Básico – a value product line to give Dodot a presence in the economy tier at a
price roughly 25% below Dodot Etapas. Its pack would promote “Dodot quality at
a basic price.”

Key aspects of the marketing plan of Dodot Básico were:

This document is an authorized copy for the course "Understanding Your Customers" taught by prof. Mario Capizzani.

Minimum to no advertising support.

Offered only in selected distribution channels (i.e., mainly supermarkets and discounters).7
Available in large and super large unit packs only (>100 units).
Sold at specified prices (i.e., no discounts or promotions).
Offered only in most commonly used sizes: three to five.
Thinking about 2010, Marquez pondered whether the new marketing strategy would help his
unit drive both earnings and market share growth. He thought that, at the very least, the new
product line had potential to allow them to be more selective in targeting certain customer
segments. At the same time, he wondered what alternative strategies could better help him
achieve his objectives.

7 Mercadona, the second largest retailer in Spain with a 13% market share for distribution, had declined to stock the new Dodot
Básico product line.

IESE Business School-University of Navarra 5

 M-1298-E Dodot: The Introduction of a Basic Line in the Iberian Peninsula

Exhibit 1
Price Tiers in Diaper Market in Portugal and Spain Defined by Mean Retail
Sales Price (in €)

Product/Brand Portugal Spain Index

Super-premium brands
Dodot Activity 0.27 0.31 (122)
This document is an authorized copy for the course "Understanding Your Customers" taught by prof. Mario Capizzani.

Huggies Super-Seco Ultra 0.23 0.29 (112)

Premium brands
Dodot Etapas 0.22 0.26 (100)

Economy brands
Huggies Super-Seco 0.19 0.22 (85)

Price brands
Eroski - 0.16 (64)
Mercadona (Deliplus) - 0.16
Lidl 0.14 0.16
Hipercor (Aliada) 0.14 0.15
Carrefour 0.13 0.15 (60)
Día/Minipreço 0.13 0.15
Pingo Doce 0.13 - (59)
Intermarché 0.13 -

Note: Numbers in ( ) are indices indicating relative price with respect to Dodot Etapas.
Source: Retailers’ non-promotional average posted prices for size four diapers and case writer analysis.

Exhibit 2
Demographic Statistics: Birth Rate per 1,000 People (BRPT) and Fertility Rate (FR)
in Portugal and Spain

2005 2006 2007 2008 2009 2010E 2015E

BRPT Portugal 10.70 10.90 10.90 11.30 11.20 10.90 9.60

FR Portugal 1.33 1.36 1.38 1.46 1.47 1.47 1.49
BRPT Spain 10.80 10.70 10.60 10.50 10.30 10.10 9.30
FR Spain 1.47 1.47 1.48 1.49 1.49 1.50 1.52

Source: Datamonitor and Eurostat.

6 IESE Business School-University of Navarra

 Dodot: The Introduction of a Basic Line in the Iberian Peninsula M-1298-E

Exhibit 3
New Proposed Dodot Product Line Starting in 2010: Activity, Etapas and Básico
This document is an authorized copy for the course "Understanding Your Customers" taught by prof. Mario Capizzani.

Exhibit 3b
Upcoming Dodot Activity With Dry & Adapt Technology – the “iPañal” (i.e., “iDiaper”)

Source: Arbora & Ausonia.

IESE Business School-University of Navarra 7

 M-1298-E Dodot: The Introduction of a Basic Line in the Iberian Peninsula

Exhibit 4
A&A Annual Income Statement
Annual Income Statement (in €m)

2009 (F) 2008

Net Sales 625 655
This document is an authorized copy for the course "Understanding Your Customers" taught by prof. Mario Capizzani.

Subsidies for operating costs – 0

Other operating income 0
Total revenue 620 651
Costs of goods sold 256 285
Gross profit 364 366
Service cost 87 96
Total payroll cost 71 71
Cost of stock depreciation and amortization -0.1 -0.2
Fixed assets depreciation and amortization 36 45
Other operating costs 0.8 0.9
Net operating income 169 152

Total financial income 2 6

Total expenses 0.8 1
Profit after extraordinary items and before tax
Tax 170 158
Total taxation 46 41
Net profit 125 116

Source: Dun & Bradstreet.

8 IESE Business School-University of Navarra