Drypers Short Case Essay

Submitted By bcbear
Words: 540
Pages: 3

DRYPERS CORPORATION Short Case Brief
Major Issue/Problem:
Should Drypers Corporation consider launching a $10 million dollar television advertising campaign to increase awareness and create brand recognition of their product?
Alternative 1 - Launch A National Television Campaign
Advantages:
Improve brand recognition & awareness
Opportunity to move from promotion-driven sales to brand-driven sales
Potential to gain national exposure
Be more competitive with Kimberly-Clark and Proctor & Gamble
Increased penetration in grocery stores & mass merchants than through existing promotional campaigns
Disadvantages:
High cost, 33% increase of current advertising & promotion budget
Risk of sales not increasing enough to cover the 10 million dollars expense.
Possibility of failure (six month television campaign may not have long-term effect on national brand recognition)
Alternative 2 - Maintain the Current Position; Do nothing
Advantages:
Incur no additional costs
Less risk involved
Expenditures could possibly be better allocated elsewhere:
R&D/innovation
getting on shelves at mass merchants international market penetration
Disadvantages:
No increase in brand awareness
Forgo the opportunity of gaining market share
Staying in the market that has been declining over time
Could be missing out on potential new consumer segments
Quantitative Analysis: 1995 1996 1997
Net sales
163.9

207.0

287.0

Cost of goods sold
114.1
69.6%
126.1
60.9%
175.6
61.2%
Gross profit
49.8

80.9

111.4

Selling, General & Admin Expenses
53.8
32.8%
70.4
34.0%
89.8
31.3%
Unusual expenses
3.1
1.9%
-
0.0%
-
0.0%
Restructuring charge
4.3
2.6%
-
0.0%
-
0.0%
Operating income (loss)
(11.4)

10.5

21.6

Interest expense, net
8.0
4.9%
8.9
4.3%
10.0
3.5%
Other income
-
0.0%
-
0.0%
0.3
0.1%
Income (loss) before tax and extraordinary item
(19.4)

1.6

11.9

Income tax provision (benefit)
(3.9)
-2.4%
0.4
0.2%
2.3
0.8%
Extraordinary item
-
0.0%
-
0.0%
(7.7)
-2.7%
Net income (loss) in millions
(15.5)

1.2

1.9

Contribution Margin % (CM %) = Total Revenue – COGS Total Revenue

287 – 175.6 (38.8%) 287

Break-Even Dollars (BE$) = Total Fixed Cost = 10,000,000 = $25.8 million
CM% 38.8%

Recommendations:
I recommend Alternative 2. Drypers Corporation should not introduce the campaign if they are deciding only to run it for one year for the following reasons:
1. Incremental U.S. sales of $25.8 million above the expected 1998 growth would be needed to cover the additional advertising expense ($10 million / 38.8%). It is not known whether or not the company can effectively manage this…