JULIUS SCHMID OF CANADA LTD.
Bob Wallace, Marketing Manager at Julius Schmid of Canada Ltd., was considering
repositioning some products within the firm’s major product line. Julius Schmid was Canada's
largest seller of condoms and, with the HIV/AIDS epidemic and more women purchasing condoms,
new markets were opening. It would take about six months to have any changes in the firm’s
marketing mix ready for the marketplace.
The Condom Market
The condom first appeared in the 16th century when the physician Gabriel Fallopius
designed a medicated linen sheath for the purpose of preventing venereal disease. By the 17th
century, the condom was also used as a contraceptive.
In the 1980’s, unit sales of condoms in Canada had declined at an annual rate of three
percent but the dollar volume of sales actually rose at an annual rate of two percent because of
compensating price increases. When initial fears of an HIV/AIDS epidemic surfaced in 1990, a
dramatic reversal in sales was seen with double-digit growth for the first half of the 1990’s. Today
the condom market was a $38 million a year business in Canada growing at six percent annually.
There were four major competitors in the Canadian market. The market leader was Julius
Schmid with about 63% of the market. While none of its product was manufactured in Canada, it
did maintain electronic testing and packaging facilities in the country. Its condoms were
manufactured in the United States and Germany. Ortho Pharmaceuticals was a distant second with
about 22% of the market. Ortho had been a wholly-owned subsidiary of Johnson and Johnson Inc.
but was recently purchase by Ansell Laboratories. Otho specialized in contraceptives and, by far,
its largest product line was oral contraceptives. Ortho’s condoms were imported fully packaged
and tested from Brazil.
With only seven percent of the market, Lifestyles condoms, manufactured and packaged in
the United States by Akwel Pharmaceuticals held third place. In fourth place, with about three
percent of the market was Trojan. A few other companies accounted for the remaining market
shares.
The situation was quite different in the United States where Trojan was almost a generic
name for a condom. Trojans accounted for 68% of the American market. Schmid Labs (the
American sister company of Julius Schmid) was in second place with about 16% of the market and
Ansell held third place with 14% market share. The American market was about ten times the size
of the Canadian market.
------------------------This case was written by Marvin Ryder. Case material is prepared as a basis for classroom
discussion only. Copyright 2003 by Marvin Ryder, Michael G. DeGroote School of Business,
McMaster University, Hamilton, Ontario. This case is not to be reproduced in whole or in part by
any means without the express written consent of the author.
Condoms were primarily used by men 18 to 24 years of age engaging in pre-marital sex. A
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second user group were married men who reverted to using condoms during the two to three month
waiting period between the time a woman stopped taking birth control pills and the time she could
safely conceive a child. Estimates were that 6.7% of couples, aged 15 to 44, engaging in
intercourse, used condoms as a contraceptive method.
While men were the main users of the product, it was estimated that between 40% and 45%
of all condoms were purchased by women. It was theorized that women had historically been the
person in the relationship to think about contraceptive methods. Buying condoms for a lover would
be a natural extension of that concern.
Seventy percent of condom purchases were made for contraceptive reasons. As such, the
condom competed with the diaphragm, the intra-uterine device and the birth control pill. The
condom was the only form of birth control, besides abstinence, that a man could use. The other
forms were directed specifically at women. The remaining thirty percent of condoms were
purchased to prevent sexually transmitted diseases (STD’s). These diseases included: chlamydia the fastest spreading STD; gonorrhea; herpes - an incurable STD that re-appeared two to three times
per year; syphilis; and vaginitis.
Company Background
Julius Schmid Inc. was founded in New York city by Julius Schmid who served as
President of the company until his death in 1939. In 1936, Julius Schmid Inc. moved into Canada
at the request of Drug Trading Company, one of the largest Canadian wholesalers of
pharmaceutical/over-the-counter products, which was concerned with the then poor quality of
condoms marketed in Canada. The first products sold in Canada by Julius Schmid were Sheik,
Ramses, Cadets and Fourex condoms.
In 1965, the Toronto-based company became a wholly-owned subsidiary of the United
Kingdom company London International Group PLC and began importing rubber gloves for sale in
Canada. In 1999, London International Group merged with Seton Scholl (the manufacturer of Dr.
Scholl’s foot products) and announced that the Julius Schmid name would be replaced with the
Durex name which was better known in Europe. Today, the company employed 65 people. Sales
could be broken down by product as: condoms (68%); rubber gloves, both industrial and consumer
(25%); and some over-the-counter pharmaceutical products (7%). Sales of the companies condom
line - Ramses, Sheik, Fourex, Supreme, Nuform - had been relatively stagnant. (See Table 1)
Table 1 Condom Sales for Julius Schmid of Canada Ltd.
Year
Quantity (in gross*)
1999
484,000
2000
466,400
2001
488,400 estimated
2002
* A “gross” was defined to be twelve dozen units.
Julius Schmid was unique in that it was the only competitor in the condom market to
advertise. With an annual budget of approximately $500,000, advertising was confined mainly to
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magazines. The company appealed to both men, through magazines such as Cycle Canada and
University Life, and women, through magazines such as Chatelaine and Flare. (See Exhibit 1 for
two typical magazine ads) Julius Schmid spent part of the advertising budget on informative
pamphlets and posters that were sent to secondary schools, health clinics and sexual counselling
centres.
The AIDS Crisis
AIDS (Acquired Immunodeficiency Syndrome) was caused by a virus that attacked the
body’s immune system, leading to its collapse and thus left the person vulnerable to a number of
infections or cancers. The virus which caused AIDS, Human Immunodeficiency Virus (HIV), was
found in the blood, semen or vaginal fluid of an infected person, and was spread when any of those
substances entered another person’s bloodstream. The virus had also been isolated in tears and
saliva of some infected individuals but not one known case of AIDS was caused by these bodily
fluids.
Infection with the HIV virus did not always lead to AIDS. However, even though some
people infected with HIV appeared to remain in good health for a long time, it was not known how
many people would go on to develop illnesses, some fatal, in the years to come. The U.S. National
Academy of Science estimated that between 25 to 50 percent of those infected with the virus would
develop AIDS eventually. The Centres for Disease Control in Atlanta, Georgia estimated that
between 10 to 30 percent of those infected would go on to the final stages of AIDS within the next
five to ten years.
AIDS was a world-wide phenomenon. The World Health Organization (WHO)
conservatively estimated that there were 38.6 million adults and 3.2 million children infected with
HIV/AIDS at the end of 2002. In the year before, 5 million new HIV/AIDS infections were
reported and 3.1 million people died of the disease – a higher global total than any year since the
beginning of the epidemic. In Canada, it was estimated that 49,000 people were infected with
HIV/AIDS and 400 had died in 2002. (See Table 2 for a comparison of diagnosed HIV/AIDS
infections and deaths by country).
In theory, anyone could get AIDS -- it depended on one’s behaviour. Homosexual and
bisexual men who engaged in the practice of anal intercourse without precautions were at great risk
and represented the highest percentage of AIDS cases. In Canada, this group represented over 82%
of all reported cases, while in the United States, it represented 66% of reported cases. Through a
better understanding of how AIDS was transmitted and an aggressive campaign for safe sex, the
gay community hoped to see a decrease in HIV infections.
Intravenous drug abusers who shared contaminated needles or syringes were the second
group to be most concerned and represented 17% of the AIDS cases in the United States. This
group, however, only represented 0.4% of the AIDS cases in Canada. This low rate was probably
due to a smaller drug abuse problem in Canada and the ready availability of clean needles and
syringes at most pharmacies. Other risk groups included: those who had relationships with people
who might be in the high risk group; those who received blood
Table 2 Number of People Living with HIV/AIDS and
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HIV/AIDS Deaths by Selected Country in 2002
Country
Canada
South Africa
India
Ethiopia
Nigeria
Kenya
Zimbabwe
Tanzania
Mozambique
Congo
Zambia
United States
Thailand
Brazil
China
Mexico
Dominican Republic
France
Russia
Italy
Pakistan
Guatemala
Germany
United Kingdom
Australia
Japan
People Living with HIV/AIDS
49,000
4,200,000
3,700,000
3,000,000
2,700,000
2,100,000
1,500,000
1,300,000
1,200,000
1,100,000
870,000
850,000
755,000
540,000
500,000
150,000
130,000
130,000
130,000
95,000
74,000
73,000
37,000
31,000
14,000
9,000
HIV/AIDS Deaths
400
250,000
310,000
280,000
250,000
180,000
160,000
140,000
98,000
95,000
99,000
20,000
66,000
18,000
17,000
4,700
4,900
2,000
850
1,000
6,500
3,600
600
450
100
150
transfusions of infected blood or blood products; and children who contracted HIV from an infected
mother, before or at birth.
To minimize the risk of contracting or spreading AIDS, the Surgeon-General of the United
States, recommended abstinence from sex. Since this was unlikely, maintaining a mutually
monogamous relationship with a partner who had not been exposed to HIV would also eliminate
risk. Many people did not practice mutually monogamous relationships, thus it was recommended
that the proper use of a condom during sexual intercourse would decrease the risk of AIDS.
Researchers proved in laboratory tests that condoms could stop HIV. The virus could not
penetrate the condom material of latex rubber condoms unless the condoms were ruptured.
Regardless of the precautions taken, all sexually active people with multiple partners were advised
to exercise safe sex practices. The use of condoms was statistically considered 95% effective.
The Decision
The firm could reposition some of its condom products to appeal directly to the AIDS high
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risk group. Different names, different packages, different advertisements and different distribution
channels would be needed. While this approach made some sense, Julius Schmid did not want to
be seen as “cashing in” on the AIDS problem. Also, the firm did not want to be seen as
controversial. Designing a condom product especially for the gay community might be seen as
condoning homosexual behaviour and that stance could create a backlash from their heterosexual
customers. Another consideration was the gay community itself. Many of its members did not
wish to be identified -- would they risk buying a product specially made for gays and thus identify
themselves to the cashier and other people in a store?
Likewise, the firm could develop condom products targeted specifically to female
purchasers. Some industry experts considered them to be the largest single market as the 55% of
men who were purchasers were made up of both homosexual and heterosexual males. Again
different names, different packages, different advertisements and different distribution channels
would be needed.
As he reviewed some population data (See Table 3), Bob was trying to formulate an action
plan. Since so much of Julius Schmid’s business depended on the condom market, his decisions
could have a profound impact on the company’s future.
Table 3 Selected Canadian Population Statistics
Age Range Number of Single Women Number of Single Men
15-19
20-24
25-29
30-34
35-39
20-24
1,019,559
1,050,644
1,055,573
1,126,916
1,286,179
1,341,234
1,076,030
1,094,105
1,083,359
1,147,675
1,309,077
1,345,859
Though difficult to determine, estimates were that between
five and ten percent of the population was gay.
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