I think where KC/Pampers have screwed up royally--at least in the US market--is that they're not accounting for the (mostly) falling birth rate.
People are having LESS kids these days. Which says to me that, at least with 'my' generation, new parents are more willing to buy really high quality products for their 1.5 kids/average per family. Instead of trying to stretch money on 5+ kids.
However, at least as far as diapers are concerned--there literally are NONE within the major producers that are even 'quality' anymore. Even with so called 'overnight' diapers, the trend has been to make them progressively thinner, cheaper (in quality), and more prone to breakage. To the point where--now, I'd be willing to say that 90% of all 'top brand' diapers are more or less identical in their makeup, aside from a few really really small differences: thin, barely absorbent, and designed to be changed at higher rate (forcing parents to use/buy more diapers overall).
People WILL pay more for some kind of 'premium' quality diaper. But, at least for average consumers, that can no longer be found in Huggies/KC line. Which is part of why I think people are being driven more to try cloth diapers.
Overall? Their business model sucks.
If they didn't already have a partial monopoly on the market as is--I'd wager that they would have been bankrupt already by now.