Johnson & Johnson Firm’s Economic Analysis

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Introduction

Johnson & Johnson is an American multinational conglomerate founded in 1886 and headquartered in New Jersey. The corporation was formed by Robert, James, and Edward Mead Johnson and developed sterile surgical supplies, medical publications, and household products before expanding their portfolio to include baby care consumables. It encompasses numerous subsidiary entities operating in many countries across the globe. It specializes in the development and production of innovative goods, such as medical devices, consumer commodities, and medical devices, which are the primary product markets. Some of the commodities, including medical equipment and pharmaceuticals, are price inelastic, implying that any adjustments in the cost of the goods do not impact the buying behaviors of consumers. The business operates in imperfectly competitive and oligopolistic markets, and exploits its brand equity to enhance profitability and strengthen its market position.

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Economic Analysis of Johnson & Johnson

Founded in 1886, Johnson & Johnson is an American multinational organization which develops consumer packaged commodities, medical devices, and pharmaceuticals. Over the years, Johnson & Johnson has cemented its market position through the manufacture of quality and innovative goods, such as sutures, gauze, and absorbent cotton. Pfizer, Procter & Gamble, Unilever, Merck, and Bristol Myers Squibb are among the prominent competitors of Johnson & Johnson. Although the company has been the market leader in the various product categories, a small price increase can trigger a major change in the quantity demanded.

Johnson & Johnson Company Background

Johnson & Johnson ranks among the largest and most diversified healthcare multinationals globally. The corporation traces its beginnings in the late 1800s following the combined efforts of three brothers, Robert Wood, Edward Mead, and James Wood Johnson. The trio commenced with the production of wound dressings in 1886 in a former wallpaper factory in New Brunswick, New Jersey. In this regard, Johnson & Johnson’s first commodity was the improved medicinal plaster, which utilized medical compounds combined with an adhesive to prevent infections and enhance speedy healing (James et al., 2019). This innovative product capitalized on Joseph Lister’s discovery regarding the post-surgery infections which resulted in a dramatic rise in fatalities. In subsequent years, Johnson & Johnson designed improved, soft, and highly absorbent gauze, which was followed by mass production. The company promoted the use of its antiseptic wound dressing through various publications, which also marked the commencement of the firm’s diversification.

Johnson & Johnson divested its operations and commenced the production of Johnson’s baby powder and maternity kit to aid at-home births in 1894. The baby care set included such provisions as sanitary napkins, antiseptic soap, and umbilical tape, which were promoted through instructional guides targeting mothers. Notably, tremendous progress was recorded during World War I, when the organization’s factories acquired Chicopee Manufacturing to escalate the production capacity to meet the wartime demand for sterile surgical goods.

After Johnson & Johnson went public, it embarked on an aggressive expansion and diversification campaign. It decentralized its operations, acquired numerous entities, established multiple divisions and ventured into the manufacture of pharmaceuticals, textiles, hygiene, and products. Among the notable acquisitions and subsidiaries which helped steer the company’s growth and expand its market share include Ethicon Endo-Surgery Inc., Neutrogena Corporation, Janssen Pharmaceutica, Eastman Kodak Company, Penaten GmbH, McNeil Laboratories, and DePuy Inc. In this regard, the company has continuously strived to venture into new areas, consolidate its market, mitigate competition, and strengthen its position. Through these acquisitions and the establishment of subsidiaries, Johnson & Johnson gained a global foothold and became the market leader in the various product categories it manufactured and traded.

Johnson & Johnson’s Product Markets

Johnson & Johnson aims to be the global leader of quality and reliable pharmaceutical and well-being commodities to the medical sector organizations and consumers worldwide. This implies that the organization ranks among the most highly diversified multinational conglomerates holding a substantial share in consumer-packaged goods, pharmaceuticals, and medical devices (Choudhuri, 2018). The consumer products segment comprises the development, manufacture, and sale of health and cosmetic commodities, including over-the-counter pharmaceuticals, women’s wellness, skin, and baby care products. The pharmaceutical division encompasses the invention, production, and distribution of healthcare goods, covering the five major therapeutic areas. These include oncology, neuroscience, cardiovascular and metabolic diseases, infectious ailments, and vaccines (Choudhuri, 2018). The medical devices segment specializes in the development, production, and marketing of gadgets and appliances for surgery, orthopedic, diabetes, vision, and cardiovascular care fields.

Demand, Supply, Elasticity, Market Equilibrium, and Structure for Johnson & Jonson’s Products

Supply, demand, elasticity, market structure, and equilibrium are fundamental considerations in the conduct of a business regardless of the nature of products or the industry in which an organization operates. According to Petricek et al. (2020), the knowledge of the specific nature of elasticity of the products is a critical decision-making tool. In Johnson & Johnson’s scenario, the consumer, pharmaceutical, and medical devices have different elasticities. In this regard, the organization should be cognizant of the resultant outcome of any adjustments in supply, demand, and prices.

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The elasticity of Demand and Supply

Depending on the nature of a product, the consumer and Johnson & Johnson may react elastically or inelastically to fluctuations in prices of the commodities in the consumer, medical devices, and pharmaceutical segments. The various factors which influence the elasticity of a specific good include whether the commodity is a necessity or luxury and the availability of substitutes, among others. Overall, Johnson & Johnson’s pharmaceuticals and medical appliances are relatively price inelastic since they are needed for survival. In this regard, the pricing levels and patterns of these products tend to be significantly inelastic due to the considerable closeness of the cost for substitutes. From this perspective, the end-users buying habits of Johnson & Johnson’s pharmaceutical and medical commodities are unlikely to be influenced by the upward or downward fluctuations in prices. Similarly, the supply of these products is price inelastic since the manufacturers of these commodities are considerably unresponsive to any changes in prices.

However, Johnson & Johnson’s consumer products, such as personal care and non-durable household commodities have elastic demands and supply. In this regard, any slight price adjustments attract major corresponding consumer reactions. Notably, Johnson & Johnson has established itself as a luxury brand, implying that the supply and demand of its products is significantly influenced by the price levels. For instance, the company’s No More Tears Baby Shampoo has numerous substitutes and competitors, implying that the elasticity of the product is considerably high. This implies that the consumers’ buying habits, quantity demanded, and supply would react significantly in response to even a slight change in the market price of the products.

Market Structure

Johnson & Johnson operates in oligopolistic and monopolistic competition market structures. This implies that it combines the salient features of competitive and monopoly markets and is characterized by low entry and exit barriers, a large number of sellers and buyers, and considerably similar but differentiated commodities (Labaj et al., 2017). In this regard, the structure borders pure competition and monopoly with the firms enjoying sizable market shares. For instance, the pharmaceutical products manufactured by Johnson & Johnson have very close substitutes. However, the manufacturer differentiates the commodities vertically and horizontally to create a unique market perception of the brand.

Market Equilibrium

Market equilibrium denotes the point at which the quantity demanded of a particular product is equivalent to the supply. It is a critical factor through which organizations create an efficient and balanced market. Notably, Johnson & Johnson utilizes market equilibrium to ensure that its products are in regular and consistent supply to avoid gluts or shortages. Through such an intervention, the company optimizes its profitability by leveraging pricing and marketing strategies. Additionally, Johnson & Johnson achieve market equilibrium by constantly monitoring the levels of competitive activities to initiate a corresponding course of action. For instance, the organization’s overall marketing and pricing structure for baby care and wound dressing products will be influenced by the activities of the competing entities.

Determinant Factors of Demand

There are various factors that directly impact and influence the demand for Johnson & Johnson products. For instance, consumers’ disposable income, cost of resources, price of related commodities, and the number of buyers for a given good affect the demand. In this regard, an increase in the customer’s levels of earnings will lead to a rise in the demand for any particular commodity. However, a decline in income levels may not adversely affect the demanded quantity for particular commodities, such as wound dressing, since injuries are not connected to the earnings. Notably, a recent association of Johnson & Johnson baby care and beauty products with cancer has adversely impacted the demand for the respective commodities as consumers’ tastes and preferences shift to other brands (Casey & Larkin, 2019). Therefore, the demand for the company’s products is influenced by both price and non-price-related factors.

Determinant Factors of Supply

Factors such as cost of inputs, taxes, subsidies, governmental regulations, number of sellers, productivity, and the level of technology are critical determinants of the supply of Johnson & Johnson products. This implies that any adjustments in any of these elements directly influence the number of commodities supplied in the market. Low acquisition costs of raw materials, advanced production technologies, and the number of competing sellers of a given product determine the quantities that Johnson & Johnson can supply in the market. For instance, the adoption of highly efficient manufacturing equipment will positively impact supply due to the reduction of production costs and enhanced efficacy (Liu et al., 2020). More specifically, the organization will reduce the amount of product delivered to the market when the prices of related commodities are low or if they anticipate the decline of product costs in the future.

Analysis of Johnson & Johnson Market Structure

Johnson & Johnson operates in various market structures, including in an oligopoly and monopolistically competitive market. For instance, the organization’s baby powder and other key products are in an oligopolistic setting since there are high entry and exit barriers and the strategies adopted by one firm influence the decision of the other. Additionally, these products in this market segment are significantly similar with slight differentiations. Similarly, Johnson & Johnson’s pharmaceutical operations occur under an oligopolistic structure since the industry is dominated by a few manufacturers controlling sizeable shares of the market (Valaskova et al., 2019). However, the consumer goods segment is monopolistically competitive and is characterized by low entry and exit barriers, considerably similar but differentiated commodities, and a large number of sellers and buyers.

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Additionally, the medical devices segment of Johnson & Johnson operates in an oligopolistic market structure. Notably, there are few firms that hold a disproportionate share of the market. Overall, this sector has major entry barriers which discourage the entry and the subsequent ability of other players to compete as startups. Moreover, the firms operating in this segment avoid price competition due to the potential explosion of price wars. Instead, the organizations utilize non-price competitive strategies, such as warranties, after-sales services, and advertising to solidify their brand recognition and influence demand.

Major Competitors and the Perfectly Competitive Market

Johnson & Johnson operates in three distinct market segments, including consumer goods, pharmaceuticals, and medical devices. In those areas, the most prominent competitors are Merck, Pfizer, Procter & Gamble, Unilever, Bristol Myers Squibb, Reckitt Benckiser, GlaxoSmithKline, Bayer, and Abbott, among others. In this regard, the organization generally operates in a market distinctly characterized by imperfect competition due to the violation of at least one of the conditions necessary for perfect competition. This implies that in this sector, Johnson & Johnson cannot charge whatever prices it wishes since that will push consumers to other brands. Additionally, there are numerous buyers and sellers in the respective segments and the prices do not reflect the interplay between the demand and supply of a commodity (Sun et al., 2017). Therefore, the organization operates in an imperfectly competitive market where the mere availability of substitutes is not a sufficient indicator for rivalry.

How Johnson & Johnson Ensures Profitability

Johnson & Johnson is a highly profitable company of its pharmaceutical, medical devices, and consumer products venture. Notably, the organization generates a substantial proportion of its profits from the pharmaceutical segment, where it holds a significant share of the market through its extensive product portfolio, which enhances the firm’s stability and superiority. Overall, Johnson & Johnson ensures profitability by leveraging and exploiting brand equity as the major business strategy and an avenue of creating a competitive advantage (Choudhuri, 2018; Kalaimahal & Kumaradeepan, 2019). Generally, the market bears high prices for entities with notable brand level ratings. In this regard, Johnson & Johnson’s positive brand equity allows it to enjoy increased profit margins and charge slightly higher for its products than competitors.

Projections on Johnson & Johnson Economic Situation

Analysts’ projections and forecasts on Johnson & Johnson depict a positive outlook as the firm continues to register remarkable growth and strength in its core business. Notably, the organization’s engaging in partnerships for the production of the coronavirus vaccine indicates potential and positive growth in the company’s economic situation. Although the organization does not anticipate deriving profits from this venture, it could significantly boost its bottom line and enhance its profitability in the future. Additionally, the rise in the demand for over-the-counter products, and increasing demand for medical devices, and consumer products are expected to improve considerably and strengthen the company’s market position.

Conclusion

Johnson & Johnson is a highly diversified multinational specializing in the development, manufacture, and sale of pharmaceuticals, medical devices, and a wide array of consumer products. Over the years, the company has established itself as the leader in various business segments. Notably, some of the organization’s products, such as pharmaceuticals and medical devices, are price inelastic since they are required for the survival of users. The company operates in an imperfectly competitive market and enhances its profitability through brand equity. Overall, the future projection and forecast of Johnson & Johnson are positive, particularly due to the firm’s position in innovation and inventions.

References

Casey, R., & Larkin, T. P. (2019). Ovarian cancer and “tainted talc”: What treating physicians need to know. Missouri Medicine, 116(2), 83–86. Web.

Choudhuri, S. (2018). Business strategy of Johnson & Johnson and impact on company performance. IAETSD Journal for Advanced Research in Applied Sciences, 5(2), 662–670. Web.

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James, M., Kee, D., Xian, T., Han, K., Ching, K., & Alshammari, M. (2019). Johnson & Johnson’s product safety issues and ways the company can address those issues. Asia Pacific Journal of Management and Education, 2(3), 7–18. Web.

Kalaimahal, S., & Kumaradeepan, K. (2019). Role of brand equity in influencing purchase intention branded baby soap: A case study in Jaffna District, Sri Lanka. International Journal of Scientific Research and Management, 7(02), 986–991. Web.

Labaj, M., Morvay, K., Silanič, P., Weiss, C., & Yontcheva, B. (2017). Market structure and competition in transition: Results from spatial analysis. Applied Economics, 50(15), 1694–1715. Web.

Liu, Y., Zhu, Q., & Seuring, S. (2020). New technologies in operations and supply chains: Implications for sustainability. International Journal of Production Economics, 229, 107889. Web.

Petricek, M., Chalupa, S., & Chadt, K. (2020). Identification of consumer behavior based on price elasticity: A case study of the Prague market of accommodation services. Sustainability, 12(22), 9452. Web.

Sun, B., Jing, W., Zhao, X., & He, Y. (2017). Research on market power and market structure. International Journal of Crowd Science, 1(3), 210–222. Web.

Valaskova, K., Durica, M., Kovacova, M., Gregova, E., & Lazaroiu, G. (2019). Oligopolistic competition among providers in the telecommunication industry: The case of Slovakia. Administrative Sciences, 9(3), 49. Web.

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BusinessEssay. 2022. "Johnson & Johnson Firm's Economic Analysis." August 2, 2022. https://business-essay.com/johnson-and-amp-johnson-firms-economic-analysis/.

1. BusinessEssay. "Johnson & Johnson Firm's Economic Analysis." August 2, 2022. https://business-essay.com/johnson-and-amp-johnson-firms-economic-analysis/.


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BusinessEssay. "Johnson & Johnson Firm's Economic Analysis." August 2, 2022. https://business-essay.com/johnson-and-amp-johnson-firms-economic-analysis/.