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Introduction of Pampers Swaddlers Diapers to PriceSmart Inc. Analytical Essay

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Updated: Oct 15th, 2019

Introduction

This is a marketing plan for a new product for PriceSmart Inc., a membership shopping club with warehouses situated in Central America, South America, and the Caribbean. Its growth is unprecedented in this sector and attributed to the kind of business strategy that the company has being applying through the years.

First, we carried out a company analysis of PriceSmart Inc., its history, goals and objectives and how it has faired with the other member shopping clubs. After describing the company, we searched for a new product that is to be added to the countless products for sale to club members.

After careful search and analysis, we found out that Pampers Swaddlers diapers are a quality product that can be recommended for sale at PriceSmart’s warehouses and stores. Pampers Swaddlers is popular in the UK and the US because of its softness and low price. It is also marketed over the internet.

Pampers Swaddlers is popular with mothers taking care of their babies and those who try to ease the life of the elderly and bed-ridden patients. Management of PriceSmart Inc. should consider these selling and developing its prized products in order to continue to be preferred over the other brands in the market by the customers and users.

After describing the company and the recommended product, we also provided a financial summary for the company including a three-year financial forecast for Pampers Swaddlers to become one of the products for sale at PriceSmart stores. Our conclusion depended on the results of the three-year forecast and the analysis of the company and its new product.

Company Situation: PriceSmart Inc., a membership shopping club

PriceSmart, Inc. is one of those membership shopping clubs which shoppers never fail to include in their shopping list. It operates in the Central and South Americas and the Caribbean, and serves about one million members at 29 warehouse clubs (stores).

Its corporate headquarters is located in San Diego, California. This giant shopping club was founded by Sol and Robert Price who are also founders of The Price Club. Robert Price now serves as Chairman of the Board. (PriceSmart Membership Shopping: corporate overview 2012)

To present a brief history of this giant club, it is worth noting that PriceSmart first opened in Panama in 1996 and in 1997, it went public. The 29 stores or warehouses are managed by subsidiaries which first conduct joint ventures with local business groups. When they incorporated with the local stores, the subsidiaries offered to buy the own stores.

PriceSmart has products that are locally manufactured but the rest are imported ones that come from the brands like Sony, Sharp, Brother, Toshiba, Calvin Klein, P&G, Kraft, and much more. (Plunkett 2007)

The company also aims at gaining the customer satisfaction and loyalty; that is why, its products and services are quality-oriented. It also sees the importance of focusing on their employees because of the company philosophy which states that contented employees result in contented customers. Meeting the customer’s needs and wants is a business trend in the age of globalisation.

PriceSmart aims at customer loyalty while keeping cost of production low. This is shooting two birds in one shot; however, this aim is difficult to achieve because meeting customers’ needs and wants and minimising cost of production at the same time do not ensure quality product or service. But the company insists on quality in its products.

In its 2011 report, PriceSmart increased membership from 717,000 to 832,000, so a membership renewal rate of 88% is considered the highest renewal rate in the company’s existence. (2011 Annual report 2012, p. 1)

In Santo Domingo, Dominican Republic, a warehouse club covering a 322,920 square foot area was opened to the public on November 5, 2010. The Colombian subsidiary also opened a 210,000 square foot site bought at US$6.5 million. Another store opened for membership shopping was in Cali, Colombia. (2011 Annual report 2012, p. 34)

Mission Statement and market overview

PriceSmart prides itself as one of the biggest clubs, similar to Costco and Sam’s in the United States. It aims to tap the growing and emerging markets in America because of their purchasing power and experience with similar clubs in these countries. The warehouse clubs can be found in 12 countries in such areas as El Salvador and Guatemala to Trinidad and Tobago, and one on the U.S. territory, the U.S. Virgin Islands.

The company cares for its customers by emphasising the six rights of merchandising, which are: ‘the right time, the right place, the right condition, the right quantity, the right price, and the right merchandise’. All of these rights are explainable to an ordinary customer who feels important due to the way the company treats its clients. (PriceSmart Membership Shopping: corporate overview 2012)

Marketing Objectives and Strategies

As the company website states, all items can be found and offered under one roof. They pride of high quality goods, groceries and fresh products. The firm’s merchandise ranges from electronics, computers, gadgets, appliances to bakery items, pharmacy, and many kinds of goods.

These items cannot just be found in an ordinary supermarket because of the high-quality characteristics they possess. And another important thing is that they also offer online shopping; that is something that only a few supermarkets or membership shopping clubs could offer.

PriceSmart aims to provide its members with products and services found under one roof. The goods are prime commodities which can be purchased at low price and of high quality. They offer special products and packaging sizes for members who buy wholesale.

Wholesale members are business entrepreneurs like restaurants, hotels, stores, and so forth. They also cater for local business ventures, that’s why their product sources are local and international.

The company’s growth in sales is attributed to the fresh departments which sell meat, fish, and other goods like bakery. The bakery department registered growth in sales during 2011 and because of this the company has invested more by buying new equipment and expansion of some areas (2011 Annual report 2012, p. 1).

PriceSmart’s Financial Summary

PriceSmart’s financial standing is as healthy as ever – almost every fiscal year up to this year, it pays dividends to its shareholders in the amount of $0.60 per share.

The latest earnings for the current fiscal year have already been reported to the Board of Directors and the stockholders. In 2011, net warehouse club sales reached $1,675,247, while an increase in 2010 had been only $1,365,801. (PriceSmart membership shopping: investor FAQs 2012)

SWOT and Competitor Analysis

Strength

The club has advantage in the size over the other U.S. clubs, which are about 50,000 to 80,000 square feet. The company’s buildings are specifically designed to comply to the U.S. standards, and the warehouse clubs have been opened since 2001. (PriceSmart Membership Shopping: Pricesmart, Inc. investor relations n.d., p. 7)

PriceSmart has 100% ownership of the 29 warehouse clubs in operation in 12 countries and the one in the U.S. It has full control of its subsidiaries but also provides them with some sort of independence.

Its strategy in investing into a country is to offer a joint venture with local firms, and when the company ensures that business is going well, PriceSmart offers to buy a small company and take full control over it. (2011 Annual report 2012, p. 3)

PriceSmart has provided jobs to thousands of employees from the local population in which they operate. The company sees corporate social responsibility as the one that it has to offer along to the local population and as a part of their ethical responsibility to the community from which it benefits.

The club also has programs for environmental safeguards to ensure that its products are properly disposed of and do not add to the deteriorating climate change in a community.

Weakness

The continuous raise in the price of oil and subsequent increase in price of prime commodities have some negative effects on PriceSmart’s operating costs and sales. High oil prices have impacted on the economies of the emerging markets in which PriceSmart operates. This was exacerbated with the inflationary pressures on prime commodities which affect consumer spending (2011 Annual report 2012, p. 4).

Opportunity

The 2009 recession was reported to have lesser effects on PriceSmart’s markets, particularly in Central America. The main reason for this is that PriceSmart’s goods are essential commodities. But in the U.S. market, the company continues to observe a slow-down in the U.S. sales growth.

Other events in the European market have some effects on PriceSmart’s markets, particularly the European debt crisis which has largely affected the financial markets and impacted on exchange rates of currencies with respect to the U.S. dollar.

Threats

The recent European financial crisis and global economic twists will continue to threaten consumer spending. The only way shopping clubs and supermarkets can deal with these phenomena is to continually patronise local products or services. PriceSmart’s experience has proved that the locals always try to sustain their economic hardship by buying local products so that economic momentum will continue to be advantageous.

PriceSmart’s environmental program is a positive thing but it should still be improved. It becomes weakness if the program is not supported by the local population.

Pampers Swaddlers Diapers: A New Product for PriceSmart

A new product that should become a part of the many quality products that PriceSmart can display and sell in its warehouses/stores in America and the Caribbean is Pampers Swaddlers. (PriceSmart Membership Shopping: corporate overview 2012)

It is worth noting that Pampers Swaddlers diapers have not been tapped by this giant membership club when in fact, this brand has been present in popular stores in the United States and the UK. This kind of diaper has been recommended by mothers and housewives because of its quality and features that provide comfort to their babies.

Pampers Swaddlers diapers and related products are produced in various sizes: small disposable (size 1); large disposable (size 5); adult incontinence pads; 12-inch cotton roll; tongue depressors; and baby powder. An added feature that is of help for mothers is the wetness indicator which changes its colour when the baby is wet. This is a new technology which the other diapers lack.

Another important feature of Pampers Swaddlers is its softness, which the parents, particularly mothers, will attest. The softness is described as a blanket-like one allowing the baby to sleep in full comfort. Mothers are assured that their babies feel safe and sound in these pampers (Pampers.village: Pampers Swaddlers diapers 2012).

When the baby grows, Pampers Flex with Baby Dry is the product of choice for most mothers. There are really no leaks according to some testimonies. There are no rashes on the baby or just a few may occur, so it makes a mother happy because she needs no application of ointment for any rashes. (Hamilton 2009, p. 24)

There are many competitors in the diapers’ market such as Luvs diapers (luvs.diapers.com). Luvs diapers are a bit cheaper than the given brand. Luvs diapers have most of the characteristics that Pampers Swaddlers have. Thus, Luvs diapers have Ultra Leakguard guarantee which ensures that they are leak-free diapers, and a money-back is guaranteed if the user (the mother) sees more leaks in the diapers.

Customers have several comments on this promotion of Luvs because some said that there were leaks. But others say that they are really low-priced though the diapers work fine according to what the company states in their ads (Fields and Fields 2011, p. 206).

A blind test was conducted in Houston, and the participant parents placed Luvs in the middle of the rating, at the same level with Huggies and Pampers Swaddlers. Another advantage of Luvs is that retailer giant Walmart has priced 1 Luvs with 13 cents per diaper on its website Walmart.com.

Huggies is priced at 23 cents per diaper. So, a lot of mothers prefer Luvs because of the cost. But they have positive comments for Pampers Swaddlers because of the softness and low price. (Fields and Fields 2011, p. 206)

According to the UK standards, Pampers Swaddlers diapers are still low-priced compared with the other competitors. This should be the reason mothers should rejoice.

Three-year forecast and budget

The budget forecast for Pampers Swaddlers is simplified in this calculation to get the desired profit. For example, one mega box of Size 3 with 117 nappies, which is £20, the suggested PriceSmart price is £23.40 per mega box. PriceSmart can gain £3.40 profit for each box. For 1,000 boxes of Size 3 Pampers Swaddlers, the company will obtain £3,400. In 3 years, the company will gain a profit of £10,200 for every mega box of Size 3.

Three-year forecast and budget

This is illustrated in the tables below.

Marketing Plan for next year

The marketing plan of PriceSmart for the next year will involve purchasing an initial batch of the new product Pampers Swaddlers diapers. This is an additional product to the voluminous products in PriceSmart’s stores and warehouses.

The company will purchase the diapers from the manufacturers of Pampers Swaddlers. Later, this will involve outsourcing the new product from local and foreign suppliers with the agreement with the copyright owner, Pampers Swaddlers. This marketing plan, however, is for the stores based in the UK. The prices and calculations are stated in the table below.

Marketing Plan for next year

The ROI is based on the purchased types/sizes of diapers. The next year purchase will determine the next plan for the three year forecast.

The ROI is based on the purchased types/sizes of diapers

Three year forecast for the new product of PriceSmart Shopping Clubs

As we can see in the table for the 3-year financial forecast, if PriceSmart purchases 10,000 boxes of Size 3 jumbo worth £200,000, it will earn a gross amount of £234,000. In three years, the sales will be multiplied three times and translated into £702,000. A part of this amount will go to depreciation and supply-chain expenditures.

That will make the net profit to £301,000. Of course, this is only an example, i.e. if PriceSmart is able to sell 10,000 boxes. But we are hopeful that it is even more than that considering that the sales indicator will depend on the market forces in a particular community and country.

The same scenario will apply with the other types of diapers. For example, for Size 4 jumbo diapers, PriceSmart will purchase 20,000 packs. Our calculated net sale for this type of diaper is £420,000 from an initial capital of £360,000. In three years’ time, it will become £1,260,000.

As stated, depreciation and supply chain expenses will consume a portion of the earnings. This amount, if not consumed, can still be added to savings. But it is always safe to allocate a particular amount to expenses (also called miscellaneous expenses).

This analysis and calculation maybe applicable to one branch or subsidiary of PriceSmart with assumption that all branches will purchase the same types – or more types of diapers – and sell them at their local stores. The amount stated in the table will have to be multiplied by the number of branches and subsidiaries which sell the new product.

Future marketing strategy

Although PriceSmart aims at customer satisfaction, it needs marketing insight into its goods and services, particularly for this new product, Pampers Swaddlers. There are other pampers products already on display at PriceSmart stores, and this one should give a boast to their new sales and profits because it will present the customers the choice.

Marketing insight is referred to by authors as “voice of the customer”. This can influence or become a basis for better decision making. Product planning and development, department communications, and other important information become more effective when a firm understands the customer.

Understanding the customer is a strategic move for the company. Customer insight cannot be simply attained through simple research but through a number of activities like the different activities in the marketing mix. Examples of this are multi-media advertising and promotion and surveys. Online surveys can achieve immediate response from young people who are connected through the internet.

The company needs more information to achieve its goal to satisfy customers. In response to the complexities of the time, marketers have to reform the way they collect and utilize market intelligence. In a study of Morash and Lynch, it was found out that customer’s closeness is one of the requirements of successful business where the client is loyal. It is important in demand-oriented capabilities and performance.

Customer closeness is somewhat linked with responsiveness to customers. Supply chains can also be aimed at immediate and speedy delivery of products to the customers. Operational excellence with customer closeness has to be refocused (Jobber and Lancaster 2003, p. 10).

Companies have to be flexible in dealing with customers. A business firm should provide quick response and ‘the ability to change and react’. Flexibility is defined as ‘the ability to change or react with little penalty in time, effort, cost or performance’ (Upton 1994 quoted in Govindarajulu and Daily, 83).

A flexible organisation should respond to ‘rapid changes in product mix, delivery, or volumes demanded by the customer’ (Fisher, Hammond, Obermeyer, and Raman 1997 quoted in Govindarajulu and Daily 2009, 83)..

Barsky and Ellinger (2001, p. 32) said that one significant strategy in meeting the needs and wants of customers is introducing a “customer-driven approach to supply chain management”. The authors emphasized that satisfying the needs and wants of customers is always a challenge to business.

Knowing the customers’ needs is a strategy in this new age where customers always come first and are always right. It has also become a foundation of a strong and healthy business. The practice of a customer-oriented approach can be understood as the organisation’s openness to the customer, or the company being accountable to the customer.

Taylor’s study is focused on the application of value stream management techniques to improve supply chain and logistics. The author applied this to a case study, the Texon International plc, the world’s largest supplier of materials in shoe manufacturing. Taylor introduced the value stream analysis (VSA) which was used in mapping internal manufacturing processes, and in domestic supply chains.

Taylor analyzed a project case study of a global supply chain. He concluded that it was necessary to adapt some of the approaches of the supply chain because of the global scope of the project. It was concluded, that the value stream management was ‘an effective framework in analyzing and improving the international supply chain’. (Taylor 2008)

Conclusion

New thrusts and directions are needed for the new market. This should be the main focus of PriceSmart for its new product, Pampers Swaddlers diapers. The question on how to introduce the product to the new market segment is not difficult. PriceSmart’s success in the new market will depend on a strategy that should be more customer focus.

Customer focus pertains to meeting the needs and wants of the customers. The company should get closer to its members. Market research will provide more information about the customer insight, such as what the customer wants and how its loyalty can be attained.

References

2011 Annual report 2012. Web.

Fields, D. and Fields, A. 2011, Baby bargains (ninth edition), Windsor Peak Press, Windsor.

Govindarajulu, Nalini and Bonnie F. Daily 2009, ‘Exploring the antecedents of externally-driven flexibilities’, Journal of Management Research, Vol. 9, No. 2, August 2009, via Business Source Complete database.

Hamilton, L. 2009, Pixie dust: magical insights for childbirth and life with little one, Tate Publishing & Enterprises, LLC, Oklahoma, USA.

Jobber, D. and Lancaster, G. 2003, Selling and sales management, sixth edition, Pearson Education Limited, England.

Pampers village: Pampers Swaddlers diapers 2012. Web.

Pampers village: Swaddlers sensitive 2012. Web.

Plunkett, J. 2007, Plunkett’s Retail Industry Almanac, Plunkett Research Ltd., Houston, Texas.

Price Smart membership shopping: corporate overview 2012. Web.

Price Smart membership shopping: Pricesmart, Inc. investor relations. Web.

Price Smart membership shopping: investor FAQs 2012. Web.

Taylor, D. 2008, ‘An application of value stream management to the improvement of a global supply chain: a case study in the footwear industry’, International Journal of Logistics: Research and Applications Vol. 12, No. 1, February 2009, 45–62, via Business Source Complete database.

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