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Christmas and New Year is a good time of year if you're in the business of selling toilet paper. Sales lift over the season as the 'mother-in-law' effect kicks in and consumers trade up to branded or luxury paper.

But there wasn't much festive fun for Kimberly-Clark in late 2002. Two weeks before Christmas the giant US personal care company revealed that tough competition with rival Procter & Gamble meant that fourth quarter sales would fall, and it lowered dividend predictions for the full year results (published January 27). On the following day, as if to rub salt into the wound, P&G forecasted higher sales.

K-C's president and chief executive of four months, Thomas Falk, (due to also be given the chairman's seat next month), has watched the company's stock price fall 25% since May. He was forced to eat humble pie to Wall St and promise better returns. "We are very disappointed with our results, and are taking decision actions to get our performance back on track," he said.

One of those "decision actions" is to make $175m to $200m (£108m to £124m) of cost savings this year. But most importantly, it means finding a way to get out of the damaging spiral of price competition that inflicted in its two key markets, toilet paper and nappies, by P&G and, particularly in Europe, own-label.

The irony is that K-C has had a 'recovery' plan - 'Going for Growth' - in place for 18 months, focusing on improving the company's internal structure and processes. In Europe it began with an overhaul of K-C's relationships with key retailers; marketers (rather than sales people) were put into category management jobs and customer business units were created. The second phase involved consolidating most of K-C Europe's admin functions into offices in Brighton.

The third phase, which begins this month, sees European president of the infant and child sector James Meyer moved into the new position of head of marketing and corporate development across all sectors in the region. He told Marketing that his priority is to improve the company's sense of being connected with its consumers. "We need to increase the quality of consumer insight that K-C taps into and strengthen our brand equities," he said.

As part of this, a new strata of European brand development jobs is being created to concentrate on long-term growth. Day-to-day brand management will be taken care of by brand 'activation' managers who will liaise with local management. The brand development and activation teams will be led by European marketing directors for each of the company's four main product sectors: family care (toilet, kitchen and facial tissue), infant and childcare, adult care (mostly incontinence products) and feminine care.

On the face of it, K-C is in a good position in the UK. Roughly 60% of the company's UK income is derived from Andrex, which is the UK's biggest non-food brand, and hence far and away the biggest toilet paper brand (see box).

Around one-third of K-C's UK sales come from its nappy brand Huggies, which has been steadily stealing market share from P&G's Pampers since it launched in the UK in 1993. Although facial tissues is a relatively small contributor to K-C's UK sales (about 20%), its Kleenex brand cleans up in that sector.

But look beyond the market shares and problems emerge, because of a renewed focus on paper products by P&G over the past few years and the vice-like grip of own-label in toilet tissue and facial tissues.

Price competition

Andrex might hold a leading branded position, but the market is one of the strongest for own-label, which accounts for almost half of all sales.

Price-based competition with own- label means that K-C has to fight hard to increase the value of sales of Andrex. To cap it all, P&G's launch of Charmin in the UK in 2000 took sales from Andrex and made price even more of an issue for consumers.

Price competition has also eaten away at brand values in sanitary protection, where K-C's Kotex brand ranks third behind P&G's Always and SCA Hygiene's Bodyform.

P&G's marketing power shadows K-C in all its sectors. It knocked K-C's kitchen towel brand Fiesta when P&G launched Bounty in 1999. It brought out a facial tissue brand, Tempo, in the same year, which has taken share from K-C's Kleenex.

The nappies market is the only area where K-C is the aggressor brand, chipping away at P&G's Pampers' leading share. But although nappies ought to be a prime market for brands, as mums tend to shy away from own-label, price competition is driving the value sales of both brands down. Added to which, a declining birth rate in the UK over the past few years means no chance for volume growth.

But growth areas do exist. K-C has become more active in the business-to-business market for tissue and personal care products in recent years, focusing particularly on producing items for use in hospitals.

It has also tried to tackle the issue of getting value from its brands in more mature markets. The aloe vera-scented version of Andrex helped boost the brand value by 10% last year. But competitors are never far behind; SCA is currently planning the launch of Velvet Aroma, a toilet tissue with a scented cardboard tube.

There are continuing attempts to wreak more value from the infant care market with brand extensions. K-C has been particularly successful with its Huggies Pull-Ups, the first nappy-style pants aimed at potty-training toddlers, and stole a 15% share of the wipes market from P&G with the launch of Huggies Cotton Touch Wipes in September 2001. Meyer also points to the launch in 2001 of Huggies Beginnings, Freedom and Adventurers as being the kind of marketing thinking he wants to encourage. The three sub-brands were brought out after K-C realised that mothers wanted different types of nappies according to their baby's age.

The company has also tried various weapons in the nappy price war. In October it planned to push through price increases on Huggies nappies, by reducing pack sizes, but cutting prices by a smaller proportion. But promotions from P&G forced it to accompany the pack size change with a bigger price cut. Earlier in the month, it suffered a similar failure to crank up the price of Andrex by 7%, when retailers refused to increase the prices of their own-label brands to maintain the differentials.

K-C is in a difficult position when it tries to introduce a policy of eking out higher margins for its brands. In June 2001 it took a leaf out of the P&G book by drastically cutting the price of Andrex, making it cheaper than most own-label brands. It won share, but it now appears that the cost to profit margins may have been too high.

"When you're operating in a commodity market such as toilet tissue or nappies, where all the brands are just scrapping for share, it's too easy to fall into price promotion," says Gary Spencer, head of marketing for the consumer group at agency FutureBrand. "But it gets to the point where you have taught consumers that 18 for the price of 12 is all they should look for."

Although K-C may have contributed partially to its own-brand downfall, it has always been a strong brand supporter, spending nearly 40% of global gross profits on advertising and promotion. The iconic Andrex puppy marketing campaign created by J Walter Thompson, now 30 years old, is a testament to the power of consistent brand image.

K-C has also worked hard at encouraging Huggies customers to be brand loyal and try other Huggies products via its Huggies Club, which sends out information packs and samples to around 50% of pregnant women and new mothers. But it has no nappy sampling presence in the Bounty Packs that are distributed in 98% of the country's maternity wards by women who personally stop at bedsides to chat and offer advice - a key period for building brand loyalty.

Commoditised danger

Relationship marketing is one of Meyer's answers to the problem of price competition and he intends to make a virtue out of the fact that K-C created its own DM vehicle for nappies. "We have gone through a damaging period of price competition, but by investing more in our direct relationship with consumers we can get more value from the market," he says.

Rather than having price promotions in supermarkets, K-C will be sending consumers coupons directly, still allowing them discounts, but also encouraging them to increase the value or volume of purchases.

Some consumer products marketing specialists think K-C has yet to fully tap into the opportunities to bring in more profit than its three key UK brands (Andrex, Huggies, Kleenex) offer.

"The markets it operates in are in grave danger of becoming commoditised," says David Nichols, UK managing director of marketing consultancy Added Value. "K-C needs to make its brands play a larger role in people's lives, rather than just being the name of a product they throw in the cupboard when they get home.

"There has been some good innovation, but that must be complemented by some activity to make the brands worth talking about. Perhaps K-C could do some research into colds and flu to support the Kleenex brand, for example. It's all about becoming more marketing rather than product focused," he adds.

Nichols even wonders if the famed puppy is working hard enough. "The world's moved on since that puppy first made an appearance. He's still cute and conveys the brand message, but surely he could be used more extensively?"

K-C has started down this path; increasing consumers' emotional connection with its brands is exactly Meyer's new remit.

The puppy is now much more prominent on Andrex packs, and toy versions were given away free as part of a 30th anniversary promotion last year.

The puppy image will soon appear on all K-C's toilet tissue brands across the world.

But the fact remains that much of the company's brand growth prospects are in Eastern Europe and Asia. Most of K-C's brands operate in mature markets. Few people in the UK, for example, don't already use toilet tissue (meaning no volume growth opportunities), and most people aren't willing to sacrifice something else in the shopping trolley in order to buy extra-special toilet tissue. Except at Christmas.

UK MARKET SHARE
NAPPIES                       1997              1999              2001
                       (pounds m)        (pounds m)    (pounds m est)
Pampers (P&G)            63% (287)         62% (260)         62% (230)
Huggies (K-C)            25% (115)         26% (111)         28% (104)
Own-label                 11% (52)          11% (45)           9% (34)
Source: Mintel.
TOILET TISSUE                    1999 (pounds m)     2001 (pounds m est)
Andrex (K-C)                           30% (223)             26.7% (214)
Velvet (SCA)                         13.7% (102)              12.2% (98)
Charmin (P&G)                                  -               6.6% (53)
Nouvelle (Georgia Pacific)             3.1% (23)               3.2% (26)
Own-label                            49.1% (365)               47% (377)
Source: Mintel.
FACIAL TISSUES                              1999     2001 (pounds m est)
Kleenex (K-C)                           44% (79)              47.8% (88)
Tempo (P&G)                                    -                3.8% (7)
Own-label                               50% (90)                43% (79)
Source: Mintel.
EXTERNAL SANITARY PROTECTION     1998 (pounds m)          2000(pounds m)
Always (P&G)                          43.2% (82)            47.6% (83.3)
Bodyform (SCA Hygiene)                17.9% (34)            14.9% (26.1)
Kotex (K-C)                           14.7% (28)            13.8% (24.2)
Source: Mintel.
FINANCIALS ($BN)
K-C                        1997     1998      1999     2000     2001
Sales                     12.54     12.3     13.06    13.98    14.52
Operating profit           1.48     1.69      2.43     2.63     2.33
P&G                        1997     1998      1999     2000     2001
Sales                     35.76    37.15     38.12    39.95    39.24
Operating profit           5.49     6.05      6.25     5.95     4.73

TIMELINE - Kimberly Clark

1872: Four Wisconsin men (including John Kimberly and Charles Clark) pooled their resources to create Kimberly, Clark & Co, originally a manufacturer of newsprint. Kimberly ran the business until his death in 1928.

1879: Brothers Irvin and Clarence Scott founded the Scott Paper Company in Philadelphia, to tap into the new market for bathroom tissue. Despite embarrassment over its application, the new market boomed in tandem with the US economy.

1915: The now renamed Kimberly-Clark invented Cellucotton, a cheaper version of cotton for use as bandages in the war. On finding that nurses were using them as sanitary towels the company spotted an opportunity to market a new product, albeit one that had to remain under shop counters initially.

1920: Launch of the Kotex Sanpro brand.

1930: Kleenex introduced.

1968: War with Procter & Gamble was initiated when K-C launched its first line of nappies: Kimbies. This first battle ended in disgrace for K-C shortly after when consumers complained of 'excessive leaking' and Kimbies was withdrawn.

1971: Kimberly-Clark stopped producing coated papers and pulp to concentrate on consumer products.

1978: K-C introduced Huggies in the US, reducing P&G's Pampers' market share from 70% to 40%.

1989: Launch of Huggies Pull-Ups in the US.

1995: K-C acquired Scott Paper.

2002: Thomas Falk took over as chief executive in September. The value of K-C shares plunged 25% in the last half of the year due to intense price competition with P&G in toilet tissue and nappies.