The Exquisite Art Of Marketing To Pauperized Consumers


While workers in the upper income categories, those who don’t have to worry about the price of toilet paper, have seen their incomes rise sharply over the years, the rest have been in a long downward spiral. To take just one measure: median household income, adjusted for inflation, has dropped 7.8% since 2000 (chart). The drop has been steeper for the lower income categories. These are the folks who do worry about the price of toilet paper. And for them, Kimberly-Clark Corp. and other tissue makers have a special strategy:


A word that top executives of personal-care conglomerates are proudly bandying about because it speaks of their corporate spirit of relentless innovation. And it cropped up during Kimberly-Clark’s second-quarter earnings call.

CFO Mark Buthman set the scene when he extolled “organic” sales growth of a whopping 3% in the second quarter, though actual sales, at $5.267 billion, were down fractionally year over year. A continuation of a worsening trend: in 2011, sales rose 5.5%. In 2012, sales rose only 1.0%, not even keeping up with inflation – a topic that came up a lot during the earnings call. In 2013, revenues look to be even more lackadaisical.

One exasperated analyst wanted to know with regards to the healthcare division, “Why do we have four quarters in a row of negative sales growth?”

“Yes. A couple of things,” retorted CEO Tom Falk, sticking to the rule of answering hairy questions with a yes; it would bamboozle everyone into having a positive attitude about the answer. “I think everybody in the healthcare space is trying to figure that out,” he said because his company wasn’t the only one with that problem. He ascribed it to high-deductible healthcare plans that encouraged consumers to make smart decisions; and to healthcare providers that pushed for “alternate therapies” before venturing into surgery. These efforts to tamp down on ballooning healthcare costs were giving his revenue-challenged company conniptions.

Yet Kimberly-Clark continues to eke out “adjusted earnings” growth – 8% per share in the second quarter. What gives? All manner of cost cutting, product-mix changes, and that word.

“Well, we took some desheeting in the quarter,” explained Mr. Buthman. The company was reducing the sheets on each roll of toilet paper and in each box of Kleenex. He called it an “innovation” that would lead to a “more positive” price. At the same time, volume, which the company counted in thousands of sheets, would decline. “Which net net, for us, works out to be a positive,” he said.

Citing the improved Cottonelle toilet paper line, he told an analyst, “It’s a great product, great category, growing rapidly. We will have to get you some, Connie, to try it.”

His strategy: “identifying and delivering cost savings in areas that our consumers and customers don’t care about….”

Because it’s tough out there. No revenue growth. Input prices that are increasing. Customers who can’t afford price increases. “Adjusted earnings” that have to increase. Solution: desheeting – rolls and boxes with fewer sheets. Consumers “don’t care about” that because they’re not supposed to notice.

Part of the innovation is to fluff up the tissue without adding more materials – 15% “bulkier,” it said on a box of Kleenex that had 13% fewer sheets in it, the Wall Street Journal discovered. In the Cottonelle line, sheet counts dropped by 5.7% to 9.6%. Fewer but fluffed up sheets, lower input costs for the company, and consumers who “don’t care about” that. A perfect solution – and a variation on an ancient theme – for hiding hefty price increases.

Other tissue makers are doing it too. They’re cutting the number of sheets per roll or box, they cutting the size of the sheets, and they’re fluffing up sheets to give consumers, as Mr. Buthman explained so eloquently in an interview, a “better, stronger, tissue so that you need fewer sheets to get the job done.”

But the math of getting “the job done” doesn’t quite work out that way. If someone for a particular “job” normally uses two sheets, he isn’t going to suddenly use 1.95 sheets for the same job to compensate for a 5% cut in sheet count, regardless of how fluffy and improved that innovative sheet may be. He’s going to use two sheets as before, and he’s going to buy more rolls and spend more money. If Kimberly-Clark’s cost-cutting and pricing strategy is working, he’ll never notice, though he might start wondering after a while where all his money is going.

Kimberly-Clark knows where his money is going. It’s propping up “adjusted earnings.” This is the high art of marketing to consumers who have been pauperized in small, nearly unnoticeable increments by over a decade of wage increases – for the lucky ones – that haven’t kept up with what the Fed is so passionate about creating: moderate inflation.

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