Drypers didn't have the money to pay the stores slotting fees for space on their shelves. But Pitassi and his brokers pledged they'd make up for it by supporting their product with TV and newspaper advertising, along with store inserts and lots of coupons. Whereas P&G ran inflexible national programs on Pampers and Luvs, which didn't bend to the special needs of individual stores, Drypers, they vowed, would collaborate with retailers on a more "customized" basis. Based on the Drypers game plan, stores could expect to make two to three times the profit they'd normally make on the national brands. As Pitassi explained, "We wanted to be the retailer's friend."
Some chains, like Kroger and Randall's, agreed to take the product immediately, partly out of support for a new local company. Others, such as Safeway, worried that Drypers might cannibalize their profitable private-label business and elected to wait and see. "We made a lot of requests on kneepads," says Drypers sales director Jim Tebbe.
When the first packages of Drypers hit the supermarket shelves, in late July 1988, Pitassi and his partners suspected it was only a matter of time before they saw a response from P&G. But what form would the response take? And how aggressive would it be?
All along Pitassi had considered the possibility that P&G might use coupons in an effort to garble the Drypers message. After all, if the price gap between Drypers and P&G's Pampers and Luvs shrank to less than $1, there'd be less reason for consumers to try a new brand. But the blitz of P&G coupons -- in ads, stuck on packages, in the mail -- took everyone by surprise. In the past Pampers and Luvs had used coupons for 75¢ or less; this latest crop of P&G coupons (distributed only in and around Texas) were worth $2 -- and were instantly redeemable. Kimberly-Clark, meanwhile, discounted its prices. It was obvious, says Pitassi, that Drypers' doing nothing would lead to a quick and ugly death. He named his response "the judo strategy."
Pitassi had just been reading a book about judo, and the thought occurred to him as Drypers was being attacked: what if he found a way to redirect P&G's momentum and furious spending to work against it? He huddled with one of his advertising firm's partners and eventually pieced together a campaign that would put Drypers on the map. In newspaper and magazine ads throughout Texas, Drypers invited consumers to "Pamper, Hug, and Luv Us"; parents could apply any coupon to buy a package of Drypers at $2 off its normal price of $7.99, and Drypers would thus preserve the targeted gap. Retailers, of course, could easily have refused to make the price adjustments at the cash register and to process the paperwork (which involved gathering all the coupons together and then sending them to Drypers for payment). If they had, that would have been the end of it. "But store executives loved it," Pitassi says. "Everyone likes the underdog."
Within weeks the P&G assault was blunted as thousands of shoppers agreed to give Drypers a try. "The volume," Pitassi remembers, "just went, pow! After two months we were throwing off cash." Drypers' production ran at capacity -- three shifts a day, seven days a week -- until new equipment arrived. In some Houston supermarkets Drypers' share of the market hit 15% and held firm. Through its independent brokers, meanwhile, the company was beginning distribution in other parts of the South.
the coupon deluge died down, but the Drypers partners knew that the war would go on. Given the magnitude of the stakes -- in 1990 alone, P&G's market share in diapers dropped from 51.5% to 49.1% -- new battles could flare up at any moment. What could Drypers, whose sales were running at around $14 million annually, do to fight off its multibillion-dollar rivals? The only thing they could really do, the founders decided, was to build an organization that was focused like a laser beam on value to the customer and retailer profit. Drypers had to provide all the bells and whistles of the major brands -- and sell them for less. As Klemp explains, "Every decision we made had to be based on that."
It started with staffing. In contrast with P&G, where there were levels and levels of specialists and middle managers reporting up a pyramid, Drypers aimed to be as flat as possible. To keep general and administrative costs down, all employees from the partners on down would wear multiple hats and share what they knew. "It was designed to breed broad learning," says Pitassi. Production engineers, for example, would help do the specs for the equipment they eventually installed and ran; and if the equipment broke down, they'd be the ones to fix it. Purchasing people wouldn't just specialize in pulp or tape, as they did at P&G; each would learn to buy a dozen or more materials -- everything that went into the making of a diaper. "We expected them to understand the complete production picture," explains Tognietti. They'd get materials at the same basic cost as Drypers' competitors did -- in some cases even for less -- with the added benefit of furthering teamwork.
Somehow, too, Drypers had to find a low-cost way to shadow its competitors, step for step, on product innovation and quality. How could the company do it? With clever copying. As a general strategy, the partners didn't aim to be market leaders -- that was too costly. Instead, they'd watch P&G and Kimberly-Clark for significant moves, then follow suit, pronto, with their own version. P&G's gender-specific Pampers made their debut in January 1990, for instance. "We had ours by that June," Tognietti says. In fact, Drypers had them in some cities before P&G did.
For technical punch, the company didn't need a research-and-development staff of its own -- indeed, it would have no one working full-time on development. Rather, it would lean on suppliers like 3M and Du Pont, who, Tognietti argued, stood ready to help.
And then there was the whole area of advertising. In a huge and competitive market, where P&G was spending around $10 million every month, Drypers' challenge was obvious: how to get attention with much less? Here, too, the company would try to piggyback on the resources of its competitors. Drypers, for instance, didn't need to spend millions of dollars telling the world why boys and girls would benefit from different products or why thin could be as good as thick; it would leave the expenses of educating the market to P&G and Kimberly-Clark. Drypers would invest its ad dollars where they packed the most punch -- in local and in-store ads that stressed the value of its products over national brands. For promotion, it would be just as scrappy. Unlike P&G sales meetings, for which Hollywood stars might be flown in, the Drypers meetings featured employees and brokers doing their own skits with props they made themselves from cheap materials, like plastic garbage cans. "Our budget for a meeting," Pitassi figures, "was about one five-hundredth of theirs."
