(FORTUNE Magazine) – Look out from the top of the Empire State Building directly toward New Jersey. There, right at the edge of the Hudson River, sits the Laundry Institute, a small laboratory owned by Unilever. You'd never know that inside this nondescript one-story building a battle is raging. "We're trying to figure out what to do about underarm stains," says Jack Linard, a laundry scientist. He points to the yellowed armpits of a white undershirt.

This is about much more than nasty stains. It's Unilever's latest offensive against archrival Procter & Gamble. Welcome to the down-and-dirty fight for market share in the slowest of slow-growth industries: consumer products. Like football and trench warfare, this is a contest of sweat, mud, and inches. Here every small win--shinier floors, whiter teeth, cleaner laundry--is a big one. In the $6 billion U.S. laundry market, for example, a mere percentage point gain in share means a $60 million gain in revenues. So as the rest of the business world braces for a slowdown, FORTUNE decided to turn to Procter & Gamble and Unilever for a refresher course on how to eke out growth in tough conditions.

Over the past five years, while the rest of the world has been growing at hyperspeed, $52 billion Unilever and $40 billion P&G have been living in a parallel slow-growth universe. Since 1996, Unilever's sales have declined an average 3.6% a year. P&G's have inched up 3.6% a year. Every one of the markets they compete in is barely growing, flat, or declining. Shampoo sales, for instance, grew 2.4% over the past year, according to Information Resources Inc.; deodorant was up 1.2%; dishwashing liquid dropped 0.5%; toothpaste sank 1.5%. At the same time both companies remain under intense pressure from Wall Street to pick up the pace. P&G's share price has fallen 20% over the past two years to a recent $70. Unilever is off 30%, selling recently at $30.

In this kind of environment, "it's a death struggle to incrementally gain share," says Burt Flickinger, a former P&G brand manager who now works as a consumer products consultant. P&G and Unilever have to slog it out for every fraction of every share in every category in every market where they compete. And that's a lot of slogging. Both companies own hundreds of the world's best-known brands--Crest, Pampers, Ivory (Procter & Gamble); Dove, Vaseline, Lipton (Unilever)--competing in some 140 countries. But perhaps the fiercest competition is taking place in the U.S. market for laundry detergent, where P&G's Tide and Unilever's Wisk have been locked in battle for more than 35 years.

Both companies badly need to win ground here. P&G CFO Clayton Daley told analysts in January that Tide is crucial to "getting P&G back on track." And Unilever has chosen Wisk as one of 14 brands in the U.S.--out of 1,600 worldwide--to lead its latest strategic initiative, officially called "Path to Growth."

What makes this turf war so brutal is simple: There isn't much territory to gain. Last year, volume in the U.S. fabric-care market was flat. And at $6 billion a year, the market is already so big that it can't get much bigger. "People aren't getting any dirtier," points out Ann Gillin Lefever, a consumer products analyst at Lehman Brothers. The only way to win share: take it from the competition.

In recent years nobody has played this game better than Tide. While the rest of the industry stagnated, Tide's sales climbed by 41%, to $1.8 billion over the past five years. It now owns 40% of the market. Its strategy? First, Tide spends more than $100 million a year promoting its brand name by advertising on TV, billboards, subways, buses, magazines, and the Internet. It sponsors a Nascar racecar and youth soccer leagues. It holds nationwide publicity stunts, such as its recent Dirtiest Kid in America contest. Tide has made itself an American brand icon--right up there with Coke or McDonald's.

But the real genius of Tide's strategy is its relentless stream of new and improved products. Each year P&G spends close to $2 billion on research and development, a large portion of which goes toward developing new formulations of Tide. There's Tide With Bleach, Tide Free (which has no fragrance), Tide WearCare (which purports to keep fabrics vibrant longer), and Tide Kick (whose package includes a nozzle to rub detergent directly into fabrics). In all, Tide has spawned more than 60 variations of itself. Individually, each new mutation doesn't add up to much: Tide Kick has just 0.005% of the market; Tide With Bleach Powder, 0.009%. But together they drive the business. Every new Tide on the shelf is an inch of territory nabbed from some other brand. Shelf space is so tight in stores these days that, says Susan Chachil, a category manager at Kmart, "when something new comes in, something else has got to go out."

More often than not, that "something else" has been Wisk, Tide's No. 2 competitor. While P&G was pouring money into Tide, Unilever was launching a massive restructuring and cost-cutting effort, freezing Wisk's budget over the past five years. Until last fall Wisk's most recent major product innovation was Wisk Liquid, the same product that's been on store shelves since the late '60s. Its most recent memorable ad campaign, "Ring around the collar," came out in the '70s. The result: Starting in 1994, Wisk's share of the liquid-laundry-detergent market in the U.S. slid from 13% to just 9%.

But that was then. Unilever--the undisputed laundry king in such overseas markets as South America and Southeast Asia--has made growing Wisk a top priority in the U.S., and it's loosening the purse strings to do it. "Our objective is to have global market leadership in this category," says Charlie Strauss, president of Unilever's U.S. operations. Sebastian Munden, Wisk's projects director, accentuates the negative, saying of his competition, "When you're No. 1, and you're No. 1 by a long way, basically things can only get worse."

So how do you make things worse for a strong brand like Tide? Cutting prices won't work; Tide'll only match them. Advertise more? Tide'll just outspend you. There's only one way to blow a box of Tide off the shelf: Come out with something bigger, better, and newer. And that, finally, is what Unilever believes it's got.

Two years ago the company concocted a new laundry detergent in tablet form (premeasured compressed powder packets you throw directly in the wash). Introduced in Europe under the brand name Persil, the tablets have already nabbed a whopping 6% share of the European laundry market. "This is the kind of product that gets people to reconsider the brands they use," declares Munden.

Armed with a new $80 million budget, last November Unilever launched the tablets in the U.S. under the name Wisk Dual Action Tablets. Over the next few months Wisk tablets will be everywhere. Literally. On Jan. 7, Unilever blitzed 24 million homes with tablet samples delivered in Sunday newspapers. Later this month it will roll out a series of TV ads aimed at a younger, hipper market. One spot features sultry music, the film running in slow motion as a good-looking guy gets splashed by a passing car.

Munden predicts that tablets will become a $1 billion market in the U.S. over the next five years. Of that, he expects to win a 30% share. That would boost sales of the Wisk brand by some 25%.

But Wisk shouldn't start counting its profits just yet. Tide--surprise!--has already launched a counteroffensive: Tide Rapid Action Tablets. Tide has also fired the first shot. Its new ads show a side-by-side comparison of Tide's and Wisk's tablets plopped into beakers of water. In the spot Wisk doesn't dissolve as well as Tide. It's a small point--most consumers don't wash their clothes in beakers anyway--but already Wisk is threatening to challenge Tide's claims in court. In a game of inches, after all, every inch counts.

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