P&G’s Blitzkreg

I think this is a great story. Kimberly Clark and P&G have been fighting the Pampers/Huggies War for years.

This article from the September 5th, 2003 edition of Wall Street Journal [subscription needed] details the latest battle:

With the economy sagging last summer, Kimberly-Clark Corp., the nation’s leading diaper manufacturer, turned to an old tactic for pumping up profits: It tried to sneak in a 5% price increase by cutting the number of diapers in each pack of its Huggies.

Instead of more profit, though, the company got a hard lesson in how its archrival, Procter & Gamble Co., is aggressively exploiting economic hard times and pummeling its competitors.

Kimberly-Clark’s chief executive officer, Thomas J. Falk, expected U.S. No. 2 P&G to follow up with a similar price increase with its Pampers, as it had in the past. But as smaller packs of Huggies hit store shelves, P&G dug into its own deep pockets. It splurged on promotional dollars to prod retailers into slashing prices on its bigger Pampers packs or putting up special displays. And it dramatically boosted the value of its discount coupons.

P&G sought to highlight the greater number of diapers in its diaper packs by stamping the word “Compare” on them. In some stores, Huggies buyers even received coupons on their receipts offering $5 off their next diaper purchase — of Pampers.

To Mr. Falk, the surprising blitzkrieg was “unprecedented and unthinkable.” He lamented, “We didn’t expect them to take a 15% price reduction on Pampers for five months.” Kimberly-Clark was forced to cancel its price increase before it got off the ground and race to match some of P&G’s promotions, narrowing its profit margins. It ended up falling short of third-quarter earnings expectations, an announcement that caused its stock to plunge 12% in a day.


My takeaways:

  1. I don’t think of P&G as nimble, but this is a great example of moving quickly to take advantage of a competitor’s move.
  2. Kimberly-Clark was caught flat-footed. They have been slowly losing share from the past three years and moves like this are going to continue that decline.
  3. I said this a couple of weeks ago. You are competing everyday and chances are there is someone out there who wants your customers just as bad as you do. Are you thinking about what they might do to get them?

P.S. In the interest of full disclosure, let me just say that this household has chosen the Huggies side of this battle.