An Overview of the Condom Industry

Condoms have been used for at least 400 years. Since the nineteenth century, they have been one of the most popular methods of contraception in the world. While widely accepted in modern times, condoms have generated some controversy in the past on religious and political grounds. Although by the 1960s and 1970s most of the barriers to the use of condoms were removed, advertising was one area that continued to have legal restrictions; this policy remained in place until 1979.

Although condoms played a vital role in the 60's and 70's in protection from sexually transmitted diseases like syphilis and gonorrhea, yet the main use of condom was for contraception purposes. However, the use of condoms got a severe jolt with the invention of the "PILL", as more and more women started using it as it provided the maximum protection against pregnancy. Although the use of condoms was still common in certain sections of the society, owing to its preventive role in STD's, yet its use for its main purpose was on the decline, and also the development of high class antibiotics for the treatment of STD's were affecting its global sales. Resultantly, the condom industry was at the state of maturation in the late 1970's and was destined to decline in the coming years.

Q1: Macro shock in the global environment and attitude of key movers and shakers that resulted in de-maturation of condom industry

As discussed above, the condom industry had reached its maturity by the start of 1980's and as the Pill was enjoying a competitive advantage over it. As there were neither new innovations in the product line nor a strategy in place to compete with its rivals and hence could result in the de-maturation, therefore a decline was on the cards. However, discovery of the most deadly disease of mankind i.e. Auto immune deficiency syndrome (AIDS) in the early 80's was a macro shock, that jolted the human race to its core, a disease which remains untreatable up till now, primarily spreading through unprotected sexual intercourse, and can only be prevented by the use of condoms, was one fact that not only resulted in de-maturation of the condom industry but rather flourished this business all over the globe in the times to come.

Initially, when the discovery of AIDS was made, there were many conflicting pieces of information reaching general public. There was this perception for a long time that this disease only affects homosexual people. It took a lot of education and media campaign by the Governments for the general public to understand that AIDS is a sexually transmitted infection, and the only prevention against it is either having a single sexual partner or the use of condoms which prevents the transmission of HIV virus. In these circumstances, despite of opposition by some political, ultra religious and orthodox figures, national condom promotion campaigns gained strength in US and Europe. The primary movers and shakers in this case i.e. the health personnel, Government agencies and the media did their best to create awareness in people that led to increased demands of condoms world wide, which had a direct influence on the industry. Hence the industry entered into a stage of de-maturation because of this macro shock which had major consequences for its competitors, suppliers and customers.

If I just briefly mention the key movers and shakers in the industry before embarking on the ESTEMPLE analysis, we can observe that most of the movers and shakers come from the non-dependent groups, who directly influenced this revival without having any interest in the industry, and include

  • Media
  • Medical professionals
  • Politicians
  • Government agencies
  • Activists
  • Consumer groups

In this context if we perform an ESTEMPLE analysis of the macro environment drivers of change, we detect that majority of strong influences in the de-maturation of condom industry comes from the media, social and political arenas.

As far as media is concerned, it is the strongest mover and shaker, as the campaign against AIDS and resultant promotion of use of condoms was mainly credited to media. The Government was in part also directly responsible to fund all such media campaigns, because ignorance could have devastating effects for general public.

In the social environment, it could be presumed that people might have considered changing their sexual habits and avoiding polygamy, but that did not happen or probably no data exists regarding this fact. Similarly the authorities even educated the sex workers about AIDS and safe sex, something which was a complete taboo in the past.

Similarly, the political context was very important, because previously, the religious and right wing leaders used to oppose use of condoms, but now they started to support its use publically for the overall safety and benefit of people. These all changes in behaviours and attitudes eventually led to a renewed boom in the industry

Now let us examine the condom industry post de-maturation in the light of Porter' five forces. Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability. These five "competitive forces" are:

Threat of New Entrants

New entrants to this industry were not much, as there were a lot of barriers to entry. Key barriers to include:

  • Economies of scale (mass productions required)
  • Capital / investment requirements
  • Access to industry distribution channels
  • Threat of Substitutes

The presence of substitute products can lower industry attractiveness and profitability as they limit price levels. However in this case, there was no substitute that could prevent AIDS.

Bargaining Power of Suppliers

As the raw materials were latex and chemicals which are widely manufactured around the world, hence the industry did not have any problems on this account as well. Because there were fewer buyers but many suppliers and also that these were not undifferentiated, highly valued products.

Bargaining Power of Buyers

Buyers are the people / organisations who create demand in an industry. The bargaining power of buyers is greater when there are few dominant buyers and many sellers in the industry; whereas in this case there were a few manufacturers / suppliers of condoms while all the sexually active adults in the world were its potential customers.

Intensity of Rivalry

While the Porters Five Forces model in regards to decision making, is to collect, analyze and present data for the decision maker, however Porter identifies three generic strategies to address industry rivalry i.e. corporate, business unit and functional or department level. However, intensity of rivalry between competitors was not much as in all major regions of the world, there were clear market leaders in the product.

Q2: How to further advance this de-maturation of condom industry

Although there is no single accepted definition of a mature industry, Abernathy, Clark and Kantrow's definition as 'one in which an earlier uncertainty has been replaced by stability in core concepts, a stability that permits process technology to be embodied in capital equipment or in engineering personnel and purchased in the marketplace . . . ," captures the fundamental issues associated with maturity of industries where technology is a major competitive factor. The basic characteristic of maturity is stability, of technology and market needs, and the resulting ease of copying the technology or responding to market needs. Once the de-maturation phase had started in the condom industry and that happened primarily due to the macro shock AIDS, there did not appear any direct rival to the use of condoms in prevention of the disease. From the above definition it also gets evident that for an industry to de-mature, (without a macro-shock) utilization of new technology and innovation in products is mandatory to defy stagnation and halt maturity.

However, in most industries that de-mature, it is because such companies pursue strategies within mature industries that give them the winning competitive advantage. The following strategies might further boost the profitability of condom industry

Most of the improvement potential is not in sales (or pricing) but in logistics and technology. In this case, manufacturing plants could be shifted to hugely populous areas, where disease prevalence is also high, such as Africa and India.

By focusing on innovation and growth, a company can change its self-image and ability to attract new customer base, as all adults are not prone to risk of catching disease, hence product differentiation is required to be developed for certain segments. Other product lines, related to providing sexual pleasure etc can be developed.

A major change is focussing strategies on cutting costs and improving quality

Turning attention to customers and to their customers' customers. The new watchword is customer integration: viewing supplier and customer as a single entity and working closely together in order to minimize transaction costs and maximize value to the next customer in the chain.

Strategies that can be adopted by the condom industry - post maturation

Strategies for deterring entry of rivals

Product proliferation

Price cutting

Maintaining excess capacity

Strategies to Manage Rivalry in Mature Industries

Price Signaling, Leading competitors use price changes to convey their intentions to other competitors

Price leadership, one company sets the industry price; other competitors reference their prices to that price.

Non-price competition, Competition by any means other than price.

Capacity control strategies, Preempt rival firms by building capacity ahead of anticipated increases in demand. Indirect coordination with rival firms to keep industry-wide capacity in line with demand.

Supply and Distribution Strategy in Mature Industries

Vertical integration

Backward towards input suppliers.

Forward into distribution to consumers.

Choice of integration depends on:

Need for close relationships with suppliers.

Need to ensure customer relationships.

Complexity of product

Amount of product information required

Sources of Strategic Innovation in Mature Industries

Reconfiguring the value chain:

Redefining markets and products

Innovative approaches to differentiation

Innovations or processes of technological change can be classified according to whether they affect a process or a product. Narayanan (2001) sees good reason for making such a distinction: - product innovations are more easily picked up by the market than process innovations. The latter are harder for clients or competitors to identify. They are therefore easier to protect from copying by the competition; they have different implications for businesses. Product innovations give an edge in competition for customers and even in redefining a product's / market's scope. Process innovations bring about production cost savings and enhance productivity and product quality. Changes to processes can even alter how a business operates. Such innovations can bring about organizational changes, including altered practices involving human resources, logistics and marketing functions. Narayanan (2001) defines process innovations as those related to production techniques and marketing. They include changes to methods, equipment, distribution and logistics. Meanwhile product innovations are related to the technological features incorporated into a business's goods and services. These changes may range from a simple refinement to a totally new product

Key success factors in mature industries
  • Sources of cost advantage-- Economies of scale-- Low-cost inputs -- Low overheads
  • Segment and customer selection-- As general industry environment selection deteriorates, important to locate attractive segments and woo good customers.
  • Sources of differentiation-- Emphasis on image differentiation and advantage differentiation through complementary services.
  • Sources of innovation - Limited opportunity for product and process innovation but considerable opportunity for strategic innovation
  • Use of advanced technology, development of R & D department.

Q3: Any other product or services that defied de-maturation

Technology is once again playing a dominant role in older and more mature industries- automotive, specialty chemicals, machine tools, pharmaceuticals and entertainment. These industries demonstrate how technology can be used in revitalizing mature industries, companies or product lines. An immediate example of de-matured industry that comes to mind is automobile industry. The trend towards de-maturation of the auto mobile industry is global. The design and styling of cars, development of engine, driving unit and suspension and the automation of production processes has gone through massive changes. Large cars have reduced in size and medium to compact sized cars have increased their market share, the 80's saw a marked trend in favour of greater range models, for new models to be introduced at shorter intervals, for a shorter lead time in developing new models, and the appearance of one new concept car after another. It is worthy of note that the innovation of process technology has shifted from the aim of reducing costs through scale economies to achieving earlier scale economies and more flexibility in multi kind / small lot production. This flexible manufacturing system freed the automobile industry from conventional and rigid production system and made it more adaptable to the changing market environment and the ups and downs of the quantity and kind.

Similarly the cell phone industry is defying maturity by adopting rapid technological advances, keeping the costs to a competitive level.

Conclusion

Due to increased demand and greater social acceptance, condoms began to be sold in a wider variety of retail outlets, including in supermarkets and in discount department stores. Condom sales increased every year until 1994, when media attention to the AIDS pandemic began to decline. Worldwide condom use is expected to continue to grow: one study predicted that developing nations would need 18.6 billion condoms in 2015. For the boom of the condom industry, it appears there is no end in sight.

Learning Points

As markets mature, customers can be more demanding and competition more intense. We must continually sharpen our strategic thinking and customer segmenting. Simplistic strategies will fail us, especially the ones that are based on financial optimization, cost reduction, and volume with its supposed economies of scale, because standard products and services have yielded to fragmented and changing demand.

This particular case explains how a Macro shock can reinvigorate a dying industry, but based on observations in various industries, it appears that this process of maturity can be reversed and an industry can 'demature', even without a Macro shock. The change can be either market or technology driven or both. Changes in population demographics and life styles or prices of substitute products can trigger a demand for new product dimensions or a different set of product attributes. This forces producers to develop new product design concepts, possibly new technologies, and start a new cycle of product innovations. When this happens, buyers re-evaluate the product attributes.

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