Sample Business Studies on Johnson and Johnson Company

Johnson and Johnson

Johnson and Johnson is a multinational manufacturing company that was founded in the year 1886 by three brothers, and it is located in America. The company is concerned with the manufacturing of medical devices and Diagnostics, consumer packaged products and pharmaceutical goods which are the three broad divisions of its operations. The company is listed among the Fortune 500 indicating that it falls among the largest US corporations ranked according to their high annual total revenues. The company operates its headquarters in New Brunswick, New Jersey in the United States next to the campus of Rutgers University and the consumer division is located in Skillman in New Jersey. Johnson and Johnson Company owned 250 subsidiaries in the year 2011 where it operated in more than fifty-seven countries worldwide, and its products were being sold in over 176 countries (Johnson & Johnson, 2014).

Products

Johnson and Johnson’s products include various household names that are used as medicines and for the first aid purposes. The list of the most well-known consumer products by the majority of the customers include Band-Aid product line of bandages, Johnson’s baby products clean and clear facial wash, Tylenol medication, Neutrogena skin and beauty products and Acuvue contact lenses to mention a few. In the month of December 2012, the company was approved by the Food and Drug Administration to start manufacturing a Sirturio also known as bedaquiline. The product will be the Johnson & Johnson’s drug meant to fight tuberculosis as one of the first medicine that would be used to curb the infection for the duration of more than 40 years. In the year ended 2015, the company operated in more than 260 countries where the corporations are referred to as Johnson and Johnson family companies (Johnson & Johnson, 2014).

Business Strategy

The company has applied diversification method as one of the primary business strategies to win over its competitors. Johnson and Johnson’s corporate structure is based on a decentralized system of management that encourages employees to be innovative and creative. For the corporation to  maximize fully on the diversification of its products, the company operates in three business segments for the consumer products Pharmaceuticals, and Medical Devices and Diagnostics. Johnson and Johnson have a set a Central Executive Committee that is mandated with the role of allocating resources and setting strategic priorities for the three company’s divisions (Mason, & Stone, 2008).

The company also operates subsidiaries that enable it reach its both potential and existing customers in different parts of the world. This strategy helps it in profit maximization and enlarging its customer base increasing its leadership role in the market. Large scales of operations benefit the company also in operating at minimal costs and hence benefit it in pricing strategy of its products. The company also focuses on innovation strategies to come up with new products that add value to its customers, that is, in healthcare professionals, and health systems all over the world. To facilitate innovation strategies, the company has set about 134 manufacturing facilities and 8 centers for innovations that are instituted in different parts of the world (Frank, 2009).

Market Type of Johnson and Johnson Company

Johnson and Johnson Corporation operate under the oligopoly market structure. The market structure is supported by the fact that there exist few firms that dominate most of the market supply of the medical devices and diagnostics consumer packaged products and pharmaceutical goods which are the segments that the company specializes in conducting its business. The segments that Johnson and Johnson’s company operates in are dominated by very few larger suppliers. As a result, the manufacturers together with Johnson and Johnson have acquired significant market shares for their products which are differentiated by branding and hence creating substantial barriers to the new entrance (Frank, 2009).

The companies that operate as the principal competitors in the oligopoly market structure operated by Johnson and Johnson produce similar versions of the same product, but they have been branded individually by each firm. As an oligopolistic firm, the company has been involved in creative product branding, differential marketing strategies and engaged in effective advertising of the company’s products. The strategies act as a driving force that is meant to help the company acquire a competitive advantage and hence win over the competition in oligopoly market structure. The principal competitors in the oligopolistic market for the Johnson and Johnson in pharmaceutical segment includes include Pfizer, Merck, and Novartis. In the Consumer packaged goods, the company faces competition from the dominating businesses like Procter and Gamble. In the division of health care goods, the company competes with Novartis for health care products, for example, pampers, hair care and oral B. Baby products produced by Johnsons and Johnsons encounters the dominance of Gerber Products and Nestle companies. Each of the firms in the oligopolistic market concentrates on making their brand to be the most recognized and hence winning the competitive edge. Patents, marketing, large-scale operations and government regulations especially in pharmaceutical products produced by Johnson and Johnson Company and its competitors have played a significant role as barriers to entry for the new entrants in the market (Johnson & Johnson, 2014).

Price Elasticity of Demand for the Johnson and Johnson Company

Price elasticity of demand refers to a measure that is used by economics to determine the relationship that exists between the changes in the quantity demanded of a particular product as a result of changing the price level. It is used to determine price sensitivity of a demand for a particular product in the market. Price sensitivity of demand indicates elasticity on the quantity of the product that is being demanded by the customers when price changes holding other factors constant that affect demand, for example, the level of income. According to economists, the commodity is said to be price elastic if a change in prices would reflect a relatively large effects on the quantity of the products demanded by the customers. Contrary, inelastic goods indicate that change in the price of a commodity has  relatively minimum impacts on the amount of the products that are being demanded by the consumers holding other factors constant that affect demand (Acemoglu, 2008).

Many factors affect the price elasticity of demand, for instance, existence of substitute products as one of the major factors. The commodities produced by the Johnson and Johnson Company experiences a market structure that has few players but producing similar products that are differentiated by branding. As a result, there exist substitute products for the products that Johnson and Johnson company produces and hence introducing a possibility of experiencing price elasticity of the demand as a result of changes in price. In an oligopoly that the Johnson and Johnson Company operates experiences a kinked demand curve that implies that the firm does not have substantial incentives to lower or raise the prices. This is because, having few competitors in the market, the move that is taken by one firm depends upon the payoff, and this ultimately relies on the choice of a strategy by the competitors. As a result, changing prices of the Johnson and Johnson products is the risk strategy to undertake (Acemoglu, 2008.

Johnson and Johnson company products, however, experiences both inelastic and elastic price elasticity of demand. This is because when the company increases it products prices, the other players in the market might fail to adjust their prices to match with those of the Johnson and Johnson Company. The result would be demand would shift from the company to the competing firms whose prices are relatively lower. This fact supports the existence of elastic demand on the company products. The company products also experience inelastic demand as a result of a change in prices of its products. If Johnson and Johnson Company apply a strategy of cutting the products prices, it will experience inelastic demand. The competing companies would observe the move and fear to lose on their market shares. As a result, they would similarly cut their products prices causing the demand to be price inelastic. The kinked demand curve that is experienced by Johnson products explains that increase in prices causes the demand to be elastic while decreasing the prices causes the demand to be inelastic (Pereira, & Kuhl Teles, 2010).

Income Elasticity of Demand

The elasticity of a demand is referred to as a measure that is applied to determine the relationship that exists between the changes observed in the demanded quantity by the users of a particular product as a result of changes in their real income. The sensitivity of the amount demanded by the customers as a result of changes in their real incomes is determined when other factors affecting demand are held constant. The Johnson and Johnson Company products fall into the category of normal goods and as a result, they experience the positive income elasticity of demand.  The positive income elasticity of demand explains that the company’s demand would rise as a result of an increase in income levels of the consumers. Different company segments are more sensitive to change in income than others are. For instance, the consumer segment that produces luxurious products like anti-aging lotions, no-calorie sweeteners is highly sensitive to changes in income. The Pharmaceutical and Medical Devices and Diagnostics segment sells necessary goods and hence less sensitive to income as compared with consumer healthcare segment (Neun, & Santerre, 2007).

Competitive Market and Competitors of the Company

Johnson and Johnson Company have applied different winning strategies and marketing mix to be competitive in the market over its competitors. The company has a strong brand name that has helped the company creates loyalty among the existing customers as well as deterring the new entry. The company also applies innovative measures to keep on improving its products and hence adding value to its customers helping it remain competitive in the market. Innovation also helps the company to benefit from the first mover advantages where it generates high head-start profits. The company spends a huge amount of its revenue in advertising and hence helps in capturing the attention of potential customers while still retaining the existing buyers. The company also uses advertising campaigns, for instance, advocating for healthy lifestyles that act as a promotion strategy for the company’s products.  By using three manufacturing segments, the company manages to benefit from the diversification benefits over its competitors who could be operating under the manufacturing of a single product hence being more competitive in the market than the competition (Chong & Chan, 2014).

The major competitors in the oligopolistic market for the Johnson and Johnson in pharmaceutical segment includes include Pfizer, Merck, and Novartis. In the Consumer packaged goods, the company faces competition from the dominating businesses like Procter and Gamble. In the division of health care goods, the company competes with Novartis for health care products, for example, pampers, hair care and oral B. Baby products produced by Johnsons and Johnsons encounters the dominance of Gerber Products and Nestle companies.

Substitutes Goods

The company experiences competition from the close substitute’s goods that are manufactured by its rival companies in the industry. Availability of substitute products has played a major role especially in hurting the Johnson and Johnson’s ability to increase its products prices. This is supported by the fact that the demand would shift to other products that are offered by the competitors and hence affecting its profitability. Substitute products have a positive cross elasticity of demand indicating that the demand for Johnson and Johnson products would increase as a result of an increase in price on the substitute commodity. The demand for a good would conversely decrease when the price of a substitute product is decreased. To deal with the threats of substitute products, the company has been trying to apply acquisition strategy and forming partnerships with the rival companies in the industry, for instance, merging with Guidant Company to enhance its growth in cardiology market (Krugman, 2008).

Demand Analysis of Johnson and Johnson Company

The demand for the Johnson and Johnson Company’s products has been increasing as indicated by growth in the number of demanded products by the customers. The growth in demand is indicated by the annual analysis of the company’s revenue that is generated by the three divisions of the company. The growth in the company’s products could be attributed to the increased confidence and loyalty that the company has developed to its both existing and potential customers. The demand could also be as a result of the efforts the company applies to promotion activities encouraging people to live a healthy life than it was initially (Rodrik, 2008).

Johnson and Johnson Company have also applied different strategies to create awareness to its customers concerning different products that it manufactures. The demand for new products, especially for the drugs manufactured in the pharmaceutical segments, have to a large degree caused the demand to increase. For example, demand for medicines such as Stelara for psoriasis and Zytiga for prostate cancer, and the performance of the hepatitis C drug Olysio have significantly increased as a result of increasing number of patients suffering from the corresponding diseases. This has created a wide customer base that is demanding Johnson and Johnson products.

Labor Productivity and Cost Reduction

Labor force highly determines the production level of the company and hence can either lower or increase production costs depending on the level of training. Johnson and Johnson hire competent and high profiled workers to ensure that they produce high quality and standardized goods. Training increases the level of knowhow that the staffs of a company apply to production processes. The regular training seasons are recommendable for the Johnson and Johnson Company to for the company to achieve its strategic goal of cutting the costs while maximizing on revenue generation. Johnson and Johnson Company practices decentralized management approach that has played a major role in encouraging employees to be entrepreneurial. Training programs would motivate employees to develop further the entrepreneurial skills and hence would be working towards controlling all the unnecessary production cost while still focusing on needs of customers. Training could also enable the employee to continue striving to offer solutions and hence be more creative in their work. The result would be that the company would manage to lower the production costs due to implement training programs that would motivate staffs to cut on production costs (Baker, Bloom, & Davis, 2015).

Company’s profitability and profit growth capability

Profitability is the main goal of any operating business venture because when the company fails to be profitable, it shows a sign of failure and hence will not survive in the long run. It is paramount for any business venture to measure current and past business profitability to understand the chances of survival and develop a strategy that would enable it to be more profitable. The current and past profitability measurement could also be used to project the future profitability of the business. Johnson and Johnson Company analysis of its profitability has indicated that the company has continuously generated enormous revenues ranging from $ 65 billion to $ 70 billion. The high revenues support that the company profitability is still intact even in the long run. The amounts could be used to raise the company’s stakeholder’s confidence especially the investors, suppliers and customers and also when making business long term decisions (Rizea, 2015).

The profit growth of Johnson and Johnson has mostly been in pharmaceutical divisions that are supported by the continuous consumption of the currents products produced. Even if the profits of the consumer and medical devices & diagnostics segments flattened out in the year 2014 the huge flows in sales of the company drugs to oncology, immunology and infectious diseases helped in maintaining the high profits. Johnson & Johnson have been performing better than many of its rivals in the marketing when considering the top line growth. For instance, in the year 2014, the pharmaceutical company revenue increased by approximately 17 % and it was projected to continue growing in the year 2015.

Making the Company’s Profits Grow

Pharmaceutical business categorized among the industries that are capital intensive in nature. The industry requires huge investments for it to manufacture optimally and have R&D facility to be able to carry out research and development processes. Through these investments, the business would manage to make its profit grow and maintain its profits in the long run. Johnson & Johnson in the effort of growing its profits has worked on various organic and inorganic growth strategies that would help it sustain growth in profits and maintain its position as a global leading pharmaceutical company (Rizea, 2015).

R&D has helped many companies grow regarding revenue generated and hence increasing profits. J & J Company has been the leading company concerning conducting R&D and has also generated the top highest sales in the Pharmaceutical industry. Growing in sales of the company has as a result of increased number of consumers of the enterprise’s products. Increased customer base hence is an essential factor of ensuring the business profits are growing. Acquiring other companies also can play a significant role in making the profits of J&J Company grow. Acquiring company helps in saving huge costs of entry into a new market and hence contributing to growth in profits level (Weingast, & Wittman, 2008).

The Four PS of marketing

Four PS represents the groups that can be controlled during the marketing process of any commodity and the standards for Product, price, place and promotion. The 4ps are in many cases referred to as the marketing mix. The 4Ps are all constrained by both internal and external aspects of the whole environment. The product component in the 4ps is used in determining the name, design, and packaging of a commodity. Examples of the Johnson & Johnson product include Feminine hygiene, Denture care, Contraceptives, and Immunology. Price is used to determine the cost of a commodity, and it explains whether volume or seasonal discounts would be offered for a given product. Johnson and Johnson attempt to maintain price increases for health care products within the Consumer Price Index. Place component refers to the decision concerning the outline of the place where product would be sold and its delivery methods to the market. Johnson and Johnson products could be accessed from either of the following outlets just to name a few Target, Walgreens, and Wal-Mart. Promotion components explain the advertising strategies, public relations and promoting plans. Johnson and Johnson Company offers exceptional coupon discounts on its goods, for example, baby care, and contact lens as one way of promoting its products (Constantinides, 2006)

 

References

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Krugman, P. R. (2008). International Economics: Theory and Policy, 8/E. Pearson Education India.

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Rodrik, D. (2008). One economics, many recipes: globalization, institutions, and economic growth. Princeton University Press.

Weingast, B. R., & Wittman, D. (2008). The Oxford handbook of political economy. UK: Oxford University Press.