In January ’97, Hogla-Kimberly will bring its international brand name diapers Huggies into the already saturated Israeli market. The entrance of the brand name which controls the US market is expected to set off a war in Israel between giants Kimberly-Clark and Proctor & Gamble.
Both concerns have a wide range of paper products, hygiene products and diapers. The war is expected to expand quickly from the disposable diaper field to other paper products, toilet paper, tissues and hygiene products.
Proctor & Gamble and Kimberly-Clark are well-known for their patterns in penetrating a new market using the steamroller method, slowly but surely. Proctor & Gamble sets a goal upon entry into the market and strives toward that goal, even if this takes years. Proctor & Gamble’s marketing strategy places importance on high quality products at reasonable prices.
Kimberly-Clark is different from Proctor & Gamble in its advertising behavior. While Kimberly-Clark uses creative style, Proctor & Gamble usually bases its advertising on testimonials.
Paper use is considered one of the clear signs of standard of living. Paper use in the rest of the Middle East countries is less than 10% that of Israel’s. The figures affirm the region’s huge potential, and the impetus for Kimberly-Clark’s interest in the local market.
Kimberly-Clark, headquartered in Texas, with annual sales turnover of $14 billion, sells in 150 countries and manufactures in 33. The cooperation with Hogla stems from plans to turn Hogla into a manufacturing site for the entire region, including Turkey, Greece, Cyprus, and, in the future, even Arab countries. Pampers’ successful entry into the market heightened competition and was one of the reasons for the Kimberly-Clark-Hogla deal.
Experience has shown that everywhere Kimberly-Clark enters a market, Pampers’ market share is not damaged, but the other competitors are obliterated. The general manager of Diplomat, Proctor & Gamble’s representative in Israel, said, "Proctor takes Kimberly’s entry into the market very seriously and will act accordingly."
Yossi Barel of Integral Marketing Consultation estimates a significant change will take effect in paper market activity, causing division in the short term, an increase in the number of brand names on the market, a decrease in profitability and increased competition. In the long term, competitors will leave the industry or create partnerships.
Barel added, "If, under the new conditions, competitors act out of stress, harming the reputations of the brand names, decreasing differentiation and positioning themselves low on the scales, they will determine the fate of the industry and its future structure."
Marketing consultants and wholesalers claim local competitor Tafnukim faces a difficult strategic problem without cooperation with a strategic partner, as it is estimated the market will be dominated by players with technological advantages.
The future battle for the paper products market will therefore focus on two types of competition, as competitors whose quality is considered low will aspire to little differentiation and attempt to drag the market into a price war. "If Sano and Tafnukim, chaos will reign in the industry, as it does in cosmetics now," Barel says. "On the other hand, Pampers and Huggies will collaborate with the retail chains and can deal the local competitors a low blow with private labels, in order to block Sano and Tafnukim whose marketing will be price-based."
Yoav Nir, General Manager of Amir Paper Products, said, "We have organized in the past and are now preparing, for daily competition with Kimberly-Clark and Proctor & Gamble. We believe the competition created can help Tafnukim to continue to be a leading brand, as most of the competition is expected to be between Titulim and Huggies, who will be marketed by the same company."
The stronger companies, Hogla-Kimberly and Proctor & Gamble (Diplomat), will try to influence differentiation and quality perception, dividing the industry among different kinds of brand names. Kimberly-Hogla’s expected strategy is to position Titulim brand diapers on the lower end of the market while positioning Huggies in the high-end premium market, against Pampers.
Wholesalers have already hinted that since diapers are an anchor product, they will be unable to keep all existing brands on the market in stock. They will therefore water down the assortment at the expense of players with small market sectors.
Kimberly’s entry with new brand names will necessitate increasing the company’s advertising budget. Investment of $2-3 million in Huggies’ entry into the market is expected, while another estimated $3 million is expected in advertising for the other paper products.
Brand names Kleenex, Kotex, and Scott will be handles by Gitam BBDO, while the Huggies account has been given to Kesher-Barel and the $1 million Titulim account is handled by Reuveni-Pridan. Tamir-Cohen handles Tafnukim, which is currently a $1 million account, but is expected to double to $2 million in the near future. Proctor & Gamble’s Pampers account is handled by Baumann-Ber-Rivnay at an estimated volume of $2 million.
The Sano account is handled by Drori-Shlomi at a volume of $4 million. According to Bruno Landsberg, Sano’s owner, the advertising budget will not deter Sano. "If we have to increase the advertising budget, we will do that."
The diaper market is a competitive and aggressive one, and actual prices have dropped in the past two years. The $100 million market is divided among local manufacturers and one importer. Hogla holds 30%, Amir Paper holds 30%, and Pampers importer Diplomat holds 30%. Sano holds 10% with the Ktantanim brand name.
Evergreen’s economists, who recently assessed Hogla, note in their review that with the entry of Huggies, Hogla will have a response for every product level, and will take bites out of its competitors’ market shares.
The market for other paper products amounts to about NIS 150 million annually. Kimberly-Hogla holds about 44% of this market.
Sano recently launched a new development, known as Netto, toilet paper without a roll, manufactured by only two factories in the world. Landsberg stated, "Sano is not a company which reacts; this is a company which initiates. What significance do the Huggies and Scott brand names have for the Israeli consumer? People act like we have one foot in the grave, and do not understand that Israel has advanced industry and manufacturers who understand marketing.
"It’s not like when Proctor & Gamble entered the French market and finished off the local industry. The situation was different there, as it was in England, where the situation was even more tragic. All the local manufacturers declared bankruptcy and many workers were laid-off. The secret of how the Israeli factory is structured stems from its cash flow, the best strategic partner available."