Outgunned by archrival Kimberly-Clark, P&G claimed only a 5% share of the $220 million market compared to K-C's 64% after five years in the region.
Although this is not the first time P&G has discontinued marketing major product lines, it nevertheless doesn't happen frequently. In the early 1980s, the company completely pulled out of Argentina and yanked most of its businesses out of Chile.
The reasons P&G executives cite for the withdrawal of Pampers from Australia and New Zealand are similar to previous situations where P&G has folded operations. Stiff competition, international currency fluctuations and having to import product into the country from distant production facilities are said to have contributed to P&G's decision.
"P&G simply did not anticipate picking up any additional market share in Australia or New Zealand, primarily because Kimberly-Clark is so well entrenched," said Lynne Hyman, a director of research, CS First Boston, New York. "Even when P&G cut prices on Pampers below Huggies, it didn't help." Athough P&G General Advertising Manager Paul Nix called the withdrawal "a suspension," a spokesman in Cincinnati said the company has not ruled out a possible re-entry.
Another P&G executive said that the size and competitive nature of the disposable diaper market did not match the level of investment needed to make Pampers a success, a statement Kimberly-Clark disputes.
"Disposable diapers account for only half of the diaper market in Australia; penetration simply is not as high as it is in the U.S. and in other countries," the P&G spokesman said. Given the size of the investment required, "we felt it was more important to concentrate on our growth brands there, such as Whisper [feminine pads], Pantene and Vidal Sassoon haircare brands."
Peter McLoghlin, general manager, Kimberly-Clark personal care divison, said the market has been growing at a 10% annual clip. "It's not a small market, and it's not struggling," he said.
One of P&G's major mistakes was to import Pampers rather than manufacture locally. Transportation costs and currency fluctuations forced P&G to price Pampers initially above Huggies.
Slashing Pampers suggested retail price to parity with Kimberly's Huggies and then below Huggies did not help Pampers gain share. "Procter cut the price and didn't get any kind of sales bump," said CS First Boston's Ms. Hyman. "That really was the key to the final decision to get out of the market."
Kimberly-Clark, by contrast was able to respond to market changes faster because of local manufacturing.
Mr. McLoghlin dismissed P&G's claim that it imported Pampers because the Australian and New Zealand markets were too small to support a manufacturing plant. "The current Australian market is around 720 million diapers a year, slightly over 50% which is taken up by disposable nappies," he said.
Importing hurt P&G in several ways when Pampers entered the market in 1989. By not targeting Australians directly and using imported packaging designed for the Asian markets with non-English script-in Chinese and some other languages, P&G alienated consumers. Even though P&G realized its mistake a year later, it took another year to switch to imports from the U.S.
Mr. Nix also blames Australia's warm weather, saying 50% of families use cloth diapers compared to 10% in Europe. But others see that as just another excuse.
P&G never was a powerhouse in Australia until its acquisition of Richardson-Vicks Inc. in 1986 that gave it a strong toiletry and OTC business. The company has been here since 1949 but it operated through agents run by an export division managed 9,000 miles away in Geneva, Switzerland. Its approach early on nearly abdicated the market to rivals Unilever and Colgate-Palmolive which opened local offices. During those first 35 years, P&G mainly kept its name alive through token imports to keep licenses valid.
With the R-V purchase, P&G got serious about Australia, renaming the local R-V office P&G Australia and installing its own management.
Kimberly-Clark, by contrast, had been marketing in Australia since 1973. The market "only took off" after 1988 when Huggies was introduced, Mr. McLoghlin said.
Support for Pampers since 1990 has been sporadic at best and P&G appeared to give up on the brand altogether 12 months ago. Within the last year P&G used virtually no advertising through its agency, George Patterson Bates, save a four-week burst in January and March, estimated at about $250,000. The ads were so low-key that local executives don't even remember the creative or themeline, only that the ads were geared toward gender-specific diapers. And P&G won't discuss them.
Kimberly-Clark has steadily spent about $5 million annually on diaper advertising, particularly Huggies, through Ogilvy & Mather, and Snugglers, through Republic Advertising, Melbourne.
In a last ditch attempt to shore up sales, P&G last May dropped its prices from about $9.95 for 30 diapers to 30% below Kimberly-Clark's Huggies, priced at $9.65 and Snugglers, at $6.27. Even that apparently didn't do the trick, and Mr. McLoghlin said Kimberly-Clark didn't follow suit.
But that didn't phase consumers. Three young mothers buying disposable diapers in a Woolworth's store recently said they knew very little about Pampers and only used Huggies.
Although P&G spent little on Pampers, the company spends more than Kimberly-Clark overall in Australia. Kimberly-Clark ranked as Australia's 40th largest advertiser last year with $9 million on Snugglers, Huggies, VIP, Kotex sanitary napkins and Kleenex tissues. P&G, by contrast, was the country's 17th largest advertiser, shelling out $20 million in advertising and another $20 million in promotion last year.
But P&G couldn't resist having Pampers go out in style. As it unloaded the last of its imported stocks through supermarkets this month reducing prices still further to $7.90 for a box of 24 and a claimed savings of $1.90, the company came up with this brilliantly creative selling point: "Pampers Toddlers 2 & 3 Years Disposable Nappies. While stocks last!"
Laurie Freeman contributed to this story.