FMCG
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Meanwhile, the company had been developing the product that would become its next blockbuster, Kleenex Tissues. In true company style, they invented the tissues with an intended use that was completely different to the one that would make the brand famous. The origins of Kleenex go back to 1917, when company researchers developed exceptionally thin sheets of Cellucotton as potential filter linings for gas masks. The Armistice saw the end of that project. It languished for a few years until a bright laboratory assistant observed the rising use of makeup (previously restricted to loose women and in the theatre), and suggested the product might be marketed as something to remove makeup at the end of the day.
In 1923 a project was given the go-ahead to market the already-named Kleenex (which was priced at 65 cents a box of 200 sheets sized 5 by 6 inches) as a cold cream remover. Advertising highlighted the product’s close association with Kotex but to disappointing effect. Sales were sluggish. Consumer research revealed the product was too small for its herculean task. So, in 1926, it was upsized to a 9 by 10 inch sheet. This, along with a pop-up box, which left the next tissue standing, was the turning point for the brand. Sales almost doubled in the next two years, to just under $1 million a year.
Then consumer surveys revealed that the sales growth had nothing to do with cold cream removal. 61% of buyers were using the product to blow their noses. Once again, the consumer had done a better job of positioning a product than the CPC marketing department. To their credit, CPC managers immediately latched onto this killer fact. They changed the name from Kleenex Cleansing Tissues to Kleenex Disposable Handkerchiefs. CPC threw a whopping $548,000 behind a new ad campaign in 1930 to announce the news, then doubled the spending for the following year. These were bold moves in the middle of the Great Depression. Wary of the way low price competitors had impacted upon Kotex, CPC initiated the production of lower-priced, private or own-label versions for most of the big retailers.
Throughout the Great Depression, sales of both Kotex and Kleenex continued to grow. Kotex was marketed to the trade as a business builder: every woman who came in to the store to buy them would invariably buy something else just to mask the residual embarrassment factor. The argument was similar to that of stocking condoms in pharmacies: it would have the positive effect of stimulating toothbrush sales by young men who suddenly became dentally aware. Kleenex sales grew simply because it was a breakthrough product. People saw it as far more hygienic than using and reusing fabric handkerchiefs which could spread infection far and wide. No doubt memories of the postwar Spanish Flu pandemic helped to fuel such sentiments. Kleenex sales were to increase seven-fold in the decade. Not only had the brand been repositioned, and then dominated market share, but the brand name became the descriptive noun of the entire category. This was the second time CPC had achieved this rare feat.
However, nothing lasts forever. Kotex experienced a much greater challenge than low-price competitors when in 1932 Earle Haas, a family doctor but working in his garage, developed Tampax tampons. In a story familiar to inventors even today (such as James Dyson), Earle touted his invention around the sanitary napkin manufacturers and was shown the door. Dispirited, he sold out to a Denver businesswoman, Gertrude Tenderich. She was made of sterner stuff. In 1934 Gertrude incorporated the Tampax Sales Corporation, and prepared to battle the big boys. Kimberly-Clark saw that their world had been changed in one fell swoop, yet tried to adapt. Fearful of missing this new market, they immediately developed their own version. This was launched in 1935 under the brand name Fibs. Not a promising start, especially as the company pulled its punches on positioning. Fibs was advertised as an adjunct to Kotex, to be used on the lighter days at the beginning and end of the period, or for hot summer days when wearing a sanitary napkin would be more uncomfortable. Worse, Fibs was flawed. It wasn’t as absorbent as Tampax. To their credit, the company did not throw good money after bad and gave up on Fibs. They worked instead to consolidate Kotex’s appeal with the very large market of women who were wary of using tampons.
CPC realised that their best chance of long-term success with Kotex was to be the first sanitary protection in a girl’s life. Hopefully she would then stick with it until menopause. They were aware that every year, due to the effects of Mother Nature, approximately 2.5% of their loyal consumers would stop using their products forever. The aim was to replace these consumers by another 2.5% who had no experience whatsoever of the category. Their first effort at moulding young female minds had been a booklet they published in 1932. Marjorie May’s 12th Birthday was designed primarily as a guide for mothers on raising the topic – a difficult task in those days. In 1940, the company changed tack. They produced ’From One Girl to Another’, which replaced the fictional mother-daughter dynamic with a more conversational tone, with the style and language used between young friends.
The next step towards establishing early brand choice was much more ambitious. The Walt Disney Company was hired to make an animated film that would be distributed to high schools across the country, along with mountains of free promotional literature. The Story of Menstruation was very innovative for the time. However, being Disney-made, it was somewhat less than graphic in its depictions of the questionable delights of menstruation awaiting the young audiences. The film also relied on politically correct language rather than using terms in common parlance in high school girls’ washrooms.
Encouraged by the success of The Story of Menstruation, CPC commissioned Disney to produce How to Catch a Cold for Kleenex. Costing $150,000 and released in 1951 in full colour, the film would not only be shown for years in schools; but was adopted by NBC as a demonstration of the benefits of colour television and shown nationwide throughout the 1950s. At the end of its run it had been seen by 200 million. This was more people than had seen any of the classic Disney movies to that point, and the airtime didn’t cost CPC a penny!
During the 1950s, Kleenex’s market share, in a still-growing market, hovered around the 50% mark. Much of the rest consisted of store brands also produced by CPC. But the wolves were circling this increasingly fatted calf. Scott Paper had launched the Scotties brand in 1955, spending heavily to promote its improved softness versus Kleenex. Scotties was unable to break through, gaining less than 10% of the market. However, Kleenex would fare less well when the Death Star of consumer packaged goods companies, Proctor & Gamble, entered the fray in 1960. They launched two dramatically better products: White Cloud toilet paper was bad news for Scott Paper; and Puffs facial tissues was equally disastrous for CPC.
Although CPC had developed two powerhouse brands in Kotex and Kleenex, parent company Kimberly-Clark was still primarily in the pulp and paper business. It was therefore under-equipped to battle the mighty Proctor & Gamble, toe-to-toe on the grocery shelves. By 1965, Kleenex’s market share, which peaked a decade earlier at 53%, was down to 32% and with no sign of the floor being reached anytime soon. This trend had not been helped by the parent company devoting much of its time and resources to a series of acquisitions in the commercial paper part of the business. They purchased the Schweitzer Inc. cigarette paper business in 1957 and the American Envelope Company in 1959. As they already had a large industrial products division, developing such areas as new envelope glues and impregnated papers to cover plywood sheets, Kimberly-Clark’s R&D resource was diverted from fighting the Proctor & Gamble monolith.
The company added to its troubles during the first half of the 1950s by spending virtually nothing in developing Kotex. This was despite the brand accounting for 35% of company profits. As a consequence, it became vulnerable to competitive attack. Between 1951 and 1957, the brand lost a full ten share points, albeit down to a still dominant 62%. The aggressor was Johnson & Johnson who developed a markedly superior pad, Modess. Kimberly-Clark fought back belatedly but made a serious misstep when they introduced a completely new brand. Fems was targeted at the larger woman, but only achieved a paltry 5% market share, and further diverted precious advertising funds away from Kotex.
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To make matters worse, the changing consumer culture of the 1960s saw a slow but inexorable shift in the sanitary protection market from pads to tampons. This was led by the now thriving Tampax. In 1959 Kimberly-Clark started to develop a new tampon and realised they had no new technology with which to trump Tampax on the absorbency front. So they focused their efforts on improving methods of insertion and removal. They resolved to insert the tampon with an attached ‘slim inserter’ stick in place of Tampax’s bulky cardboard applicator and used, for removal, a presumably more reliable knotted double string rather than Tampax’s single. These solutions were pushed hard in advertising campaigns and desperate price-cutting tactics were adopted, but the brand failed to make a dent in Tampax.
During the 1960s sales of tampons in America trebled to around a third of the market. Sales of sanitary towels remained static. Kotex had a strong but somewhat precarious share of a static market. This was bad enough but almost a highlight compared to the disaster befalling Kleenex. Procter & Gamble’s onslaught caught Kimberly-Clark in a vice, resorting both to hefty price-cutting and increased promotional spending. The only way this could be paid for was by job cuts. Kimberly-Clark seemed set on a strategy of shrinking to greatness through leaner headcount and margins. One glimmer of light came with the 1968 launch of Kleenex Boutique. It featured stylish designs upon oval boxes, and aimed to brighten up the nation’s bathroom shelves. Despite lavishing 22% of the entire tissue category’s advertising spend on the launch; the outcome was a first year market share of 2%. It rose to 6% the following year, but two-thirds of this came at the expense of the main Kleenex brand.
Kimberly-Clark turned increasingly towards other paper markets, but even that side of the business wasn’t going very well after a few ill-judged acquisitions. Between 1957 and 1970, the company’s net earnings, as a percentage of sales, declined slowly and inexorably from 8% to a shade over 4%. This was significantly worse than their archrival, Scott Paper. In 1972, earnings dropped again to 3.4%, their worst year since 1934. It looked like the consumer packaged goods side of Kimberly-Clark would turn out to be a glorious but ultimately futile chapter in the history of a commercial paper company that was increasingly shaky anyway. Both their key brands seemed to have a future of decline and despair, and the company was making next to no money elsewhere. Their strategic muddle was illustrated when the company set up K-C Aviation to service planes: they also transformed their executive airplane fleet into a scheduled airline. If you assessed company chances of quintupling its share price in the 1970s, Kimberly-Clark would be least likely. Yet, they did it, and by accomplishing a seemingly impossible feat: vanquishing Procter & Gamble.
How Did They Build The Modern Business?
The turning point for Kimberly-Clark can be traced back to the appointment of Darwin Smith as chairman and CEO in 1971. A bleak future awaited as a paper company with a couple of fading consumer brands. In his in-tray lay a bold plan: essentially to exit many of their pulp and paper businesses and to channel the funds into building resources and capabilities to become a fully-fledged consumer business. Now a packaged goods powerhouse beckoned.
Only hindsight makes this plan look obvious. Selling off a collection of paper mills would provide more funds for the consumer side, but Kimberly-Clark’s problem was not simply a lack of funds. At the time, there was little evidence that Kimberly-Clark had the brands, the R&D expertise or the marketing capabilities to do anything different. For a decade or so, they had seemed capable of only an orderly management of declining brands. However, in the absence of a better plan and mindful that the company still had a 40% share of the feminine hygiene market, Darwin gave the go-ahead. Kimberly-Clark began the process by getting out of the coated paper business.
As the business re-orientated itself, there was more bad news. Johnson & Johnson, who now had a 25% share in the sanitary towel market, came out with a game-changer that they test marketed in 1969: the tab-less pad. Until now, Kotex and other pads had to be held in place via sanitary belts or safety pins. This arrangement was disliked by the consumer due to the fiddling around, and satisfactory to Kimberly-Clark who made a healthy profit on the sale of sanitary belts. This revenue stream had deterred the company doing much development work to solve the consumer problem.
Johnson & Johnson’s new Stayfree brand, launched nationally in 1971, used an innovative adhesive strip along the bottom of the pad to hold it securely to the underwear - no belts or pins required. As well as being more convenient, it also greatly reduced chaffing. Taken together, the advantages of Stayfree over Kotex were vast. Johnson & Johnson had not only improved a product, they had effectively invented a new category. In fifteen years the market for tabbed pads such as Kotex would disappear. Just to add to the pain, the Stayfree launch coincided almost exactly with the relaxation of the National Association of Broadcasters’ ban on the television advertising of tampons and sanitary pads. Stayfree now had the most powerful medium the world had ever seen to ram home its advantages over Kotex.
Kimberly-Clark’s sensible strategy at that point was to redesign Kotex as a tab-less pad as quickly as possible and then drown out Stayfree’s advertising with their own monster television campaign. Unfortunately, they did neither. They did design a tab-less pad in record time, having it ready only six months after Stayfree, but launched it as a completely new brand under the name of New Freedom. Meanwhile Kotex didn’t take to the airwaves to defend its position until 1974, by which time the game was as good as over. New Freedom established itself and steadily gained market share, but could not compensate for the precipitous decline of Kotex - even after the towel was thrown in with a belated redesign to tab-less format in 1975. By then, what was nearly a 60% market share in 1970 had declined to 35% and would eventually bottom out at 15% in the mid-1980s. In 1976, market leadership passed to the ever-growing, newly named Tambrands, who themselves were eclipsed a year later by the Stayfree-inspired Johnson & Johnson. How are the mighty fallen in the midst of battle!
However, this did not mean that Darwin Smith’s realignment strategy was a bust. While Kotex was heading for the rocks, the funds from the sales of various paper mills had been partly ploughed into beefing up the R&D function. This was in itself realigned away from paper, glue and laminates towards higher margins, innovative consumer products that used Kimberly-Clark’s base Cellucotton technologies. First out of the gate was the launch of the Kotex Lightdays Panty Liner in 1975. This both created a new category and also effectively kept the Kotex brand alive. However, the home run that would really change Kimberly-Clark’s fortunes was to come where it was least expected. They took on Procter & Gamble on their home ground; a market they created and completely dominated disposable diapers.
Soon after Proctor & Gamble bought the Charmin Paper Company, a researcher initiated a project to develop a disposable diaper. The result, after three failed test markets, was Pampers, launched in 1961. For reasons best known to themselves, the other paper companies initially gave Proctor & Gamble a free run, As a consequence they missed out on the fastest-growing consumer paper products market of the 1960s (the diaper fillings at that point being cellulose-based). Kimberly-Clark finally began work on their own version in the mid-1960s, using what their designer claimed was a superior folding pattern that better protected against leakage. That would prove somewhat debatable, but the product they test-marketed in 1968, Kimbies, did have an advantage over Pampers: adhesive strips rather than pins.
This advantage did not last long. Pampers redesigned in 1969 so they too used tape, and then the CPC research money for further improvements ran out as the company was hit by the twin disasters befalling Kotex and Kleenex. When Johnson & Johnson brought out a new diaper with fastening tape, Kimbies was all but dead. However, it would be revived by the cash influx coming from the sell-the-mills strategy. The board allocated $17 million to the project to see if something could be salvaged. By 1973 Kimbies was barely on the Proctor & Gamble’s radar; but it was a respectable perf
ormer in the second-tier of brands, making a modest profit off one billion units.
Until Kimberly-Clark scored another own goal. In this accident-prone phase, the company switched to cheaper glue on the adhesive tabs. The significant loss of adhesion caused anger and anguish for parents across the country. This sounded the death knell for Kimbies which was withdrawn in 1975. The company’s launch of Wypall industrial wipers in the same year did little to lift the gloom.
The situation seemed hopeless, but CEO Darwin Smith was buoyed with the funds from selling the mills and with little else to go for anyway. He encouraged one more look at getting into the category, starting from treating the entire history of Kimbies as a learning exercise. A post review of the project identified five main weaknesses:
· The unique folding design had in fact caused more leakages than did Pampers
· The test marketing they had done had been insufficient
· Inadequate product research and engineering
· The glue fiasco had diverted R&D resource at a critical time
· Inadequate market research
Despite this indictment of the Kimberly-Clark marketing and technical departments, Smith channelled all of the proceeds of a 1975 mill sale and even diverted funds from Kotex and Kleenex into a last roll of the dice. He was effectively betting the future of the company that they could beat Procter & Gamble second time around.
The good news was that Procter & Gamble, while not exactly falling asleep at the wheel, did have a few chinks in their armour. Pampers was not a perfect product. They too had glueing problems with the adhesive strips, plus the rectangular shape of the unit inevitably caused bunching between the legs and some leakage. Procter & Gamble had acknowledged this by launching an elasticated, hourglass-shaped diaper in 1976 under the brand name Luvs. They were uncharacteristically hesitant about taking Luvs to a national coverage. Luvs were a super-premium diaper, priced 50% higher than Pampers. Darwin sensed an opening. Procter & Gamble were in effect admitting that Pampers was not the be all and end all of disposable diapers, yet were sluggish in pursuing the opportunity Luvs had identified.