Kimberly Clerk hand hygiene products division was eyeing Indian market which was used to cloth towels in toilets in offices and other public places like hotels, airports, etc. a few years before. The paper towel dispensers were significantly expensive including installations even for business market and acted as a big barrier for organizations to adopt KC paper products against less hygienic cloth towel systems in wash areas. KC decided to break this barrier by adopting a strategy whereby they would do free installation of paper towel dispensers and convert a toilet in KC toilet completely free. However, they would then charge significant premium on cost of disposable supplies, thus acquire a customer easily and also make profits from a customer over a period of time.

The strategy worked in acquiring customers and sales team added significantly large number of new accounts over next 6-8 months. New business development was working well but after a couple of years or so, KC realized that it wasn't making profits. Upon investigation, they found that while their sales team was acquiring new accounts easily by installing dispensing machines, it helped their local competitors who never could acquire a large account and couldn't make the dispensers but were able to make disposable paper towels at significantly low costs. Many new accounts of KC were ready customers for local suppliers whose paper supplies were significantly cheaper than KC's supply not just because they were slightly inferior in quality but also there was no burden of subsidized/free dispenser installations on supplies and much lower overheads and selling costs.

a) Which price adaptation strategy KC has used to develop the market? Which other product categories do you find such price adaptation? Given the unanticipated local competition, the pricing strategy doesn't seem to be working. What conditions such a strategy can work?

b) What should KC do now? Should they continue developing market with dispensers and premium on paper supplies? If so, how do they retain the customers? If not, what could be the alternative approaches?