Kimberly-Clark to Increase Profitability in Paper Stationery

Case Type: business turnaround; operations strategy.
Business Concepts Tested: turnaround strategy; competitive landscape; marketing strategy.
Consulting Firm: ZS Associates 2nd round fulltime job interview.
Industry Coverage: Household Goods & Consumer Products.
Quantitative Difficulty: Very Easy; Qualitative Difficulty: Hard; Overall Difficulty: Medium

Case Interview Questions #00002: You are a management consultant hired by Ms. Pepper, the head of a division of Kimberly-Clark Corporation (NYSE: KMB, BMV: Kimber), a large consumer products company that produces mostly paper-based products. Her division produces paper products in three forms: toilet tissue, paper plates/cups, and stationery (writing paper, note pads, decorative envelopes, blank cards, etc).

While toilet tissue and paper plates/cups are both profitable, stationery products are barely breaking even in good quarters and losing money in bad quarters. Ms. Pepper has just received a proposal from upper management to sell the stationery business and she wants us to help her determine if she should sell it. Or if not, what she should do to turn around the stationery business to make it profitable. What would you suggest she do?

Additional Information: (to be given to you only if asked)

1. Market Share:

Stationery is a $15 billion dollar industry nationwide in the US. There are two major players that have 30% and 25% of the market share, respectively. Your client’s market share, 12%, makes her third in the industry.

2. Competitions:

The best available information indicates that the two market leaders are profitable. The two market leaders are able to fund more advertising and promotions, such as coupons, than your client.

3. Company:

Ms. Pepper’s division has sales of $825 million per year. The entire company has sales of over $35 billion. Stationery products represent $118 million in sales per year.

One plant in California produces all of the paper products: toilet tissue, paper plates/cups and stationery. It would be difficult to find another use for the plant without a major conversion.

4. Products:

The two market leaders produce pure stationery products using only cellulose, which is derived from plant fibers. The cellulose is made by cutting down trees and then grinding up trees and dumping the wood pulp in acid.

Your client’s product uses a more elaborate process to produce recyclable stationery paper. In addition to the wood pulp in acid, the client’s product uses special fiber pellets. The wood pulp in acid is the same cost as the competitors, but the other items necessary for creating recyclable materials cost about twice as much.

Actually, the company does not have a real preference for which type of paper is produced. The recyclable goods niche was at one time perceived to be an attractive market, but the high costs of production have limited our profitability in that space.

5. Customers:

The market for stationery products is essentially mothers with school age children, young adults, and college and graduate students. This is a highly price sensitive market that loves coupons, promotions, etc.

6. Price:

Brand name is very important in this market, as in paper towels and paper plates/paper cups. However, this market is also very price sensitive; as you may note earlier, it is very responsive to coupons and other price promotions. Additionally, because this market is so responsive to price all branded products tend to sell in the same price range. Kimberly-Clark is no exception, and their stationery products are priced much like their competitors’ products.

Possible Answers:

Suggested Frameworks:

To solve this profitability case, the job candidate could explore the following in more details:

• The product mix and production process.
• The industry environment and competitive landscape.
• The customer base and consumer profile.

Possible Recommendations:

1. Sell the stationery business. This would, however, affect the toilet tissue and paper plates/cups businesses, as there are both manufacturing and advertising synergies. Also, it would be difficult to get a good price for the stationery business as it is currently not very profitable.

2. Sell the entire paper division. This may be more feasible, as the buyer could capture the synergies, however the large consumer company would lose valuable revenue from the toilet tissue and paper cups/plates divisions.

3. Keep the stationery paper business and rework the ingredients and recycling process. This could potentially entail eliminating or replacing the unique fiber pellets which are driving higher costs.