How Craft Changed Oreo Marketing Strategy in China

How kraft Changed the oreo cookie and Its Global merchandise dodging for Success in mainland mainland chinaware Gale occupation Insights Global moorage Study Collection Learning Objectives After analyzing this case study, students should be adequate to(p) to do the following Explain at least three benefits of commercialise research in fruit development for international and emerging soft touchets range traditional and nontraditional strategies for increasing revenue by entering fresh-fashi atomic number 53d global commercializes Appreciate the effect of cultural norms and tastes for firms expanding to un purposed markets Discuss how firms faeces accent fruits to local anaesthetic anaesthetic tastes musical composition increasing brand value globally IntroductionOne of the to a greater extent popular strategies for firms to increase remuneration in the 21st carbon has been to expand to in the raw, growing markets. China, India, and new(prenominal) Asian and Pacific countries ingest receive a great deal of attention by North Ameri whoremaster and European firms attempting to tap growing levels of expendable in cope from the emerging middle classes in these countries. The strategy seems sound, scarce its execution is critical to its success or failure. more than examples exist of companies in the 1990s and the first decade of the 2000s failing to pip traction in these new markets.Firms often try to attract new customers by offering essentially the same products that have leaned in opposite markets. They support this strategy by adding sales and market staff and opposite resources to convince potential buyers in the new market of the value of their products. crack a standard product across markets can minimize cost and increase profit margins. However, cultural norms, tastes, and preferences vary greatly between a firms home market and the new market it whitethorn be attempting to enter.It is often difficult for firms to gau ge the right mix of normalization and localization while still making growth profitable quite than being a drag on profits. For example, Campbell Soup Co. saw an chance to make big profits in Russia and China with its pre rigd soup products. check to The seawall Street Journal, Campbell estimated that Russians and Chinese eat soup five dollar bill clock per week on average. As life in China and Russia gets busier and a lot women enter the modelplace, the company forecasted that people would have less time to prepare meals and that the demand for preprepared food would increase.However, Campbell found subsequently social classs of merchandise its products in these countries that its canned soup strategy did not capture the revenue it inevitable to be profitable. Campbell introduced and then pulled its condensed soups bring break of China in the 1990s, and the company announce in June 2011 that it would c lose its Russian operations four social classs after entering the market. kraft Foods Inc. is another company that sees opportunities for new and growing profits in Asia. The companys first attempts to enter Asian markets were as unsuccessful as Campbells initial attempts.However, kraft decided to transubstantiation to a new marketing strategy, grounded in a divers(prenominal) ground of how to best expand into new markets. kraft paper Foods and the oreo cookie in 2005 In Need of a Change The first oreo cookie cookies were produced in smart York City in 1912 and registered as a Nabisco trademark unrivalled class later. Nearly a century of popular marketing beseechs made oreos oneness of the best trade ining cookies and best-known food brands in the joined States. end-to-end this period of popularity, very little changed about the physical cookie oreo cookies remained a sandwich cookie with chocolate ends and a cream-fill center.The design of the cookie helped pop out an eating ritual that tugrs soon appropriated to make the coo kie even more popular the twist, lick, and dunk method for eating the cookie has been a centerpiece of oreo advertising for many years. By 2005, the Oreo cookie had been a mainstay in U. S. consumer culture for nearly a century. However, sales in the linked States had seemed to peak, and international growth in emerging markets in Asia and elsewhere was slow if barely noticeable at all. The Oreo was introduced in China in 1996, in he same form that a customer would find it in a grocery store in the united States. Sales had been flat for the first five years of the 2000s and were in decline. In 2007, kraft paper Foods China was an unprofitable, $100 million business that was not growing, noteworthy Sanjay Khosla, Kraft Foods president of developing markets, in an interview published by the Boston Consulting theme. Kraft was even conjectureing of pulling the product out of the Chinese market completely, due to poor sales. The company as a whole was performing poorly. This led to a shake-up of executive concern in 2006, with Irene B.Rosenfeld installed as chief executive officer (chief operating officer). Rosenfeld had previously worked at Kraft for 22 years before leaving in 2003 to wellspring Frito-Lay North America. In early 2007, Rosenfeld outlined a strategy to modus operandi the company around that included product quality, research and development (R&D), and acquisitions as critical to the future growth of the company. Rosenfeld hired cutting-edge business leading such as Khosla to help create the strategy that would change the sort Kraft Foods Inc. does business. Fewer, but Larger Bets harvest-tide finished centralize and the 5-10-10 Strategy at Kraft FoodsWhen Sanjay Khosla left Fonterra Group in 2007 to spearhead Kraft Foods business in developing countries, he was tasked with discovering a way to crystallize the potential for growth in developing markets that had eluded Kraft and so many other enormous, successful international firms. That varied approach eschewed the traditional root that a company must produce more in do to sell more. In a 2011 feature on Khosla in gelt Magazine, Khosla noted that companies were just planting their flags, with a one-size-fits-all attitude that didnt work.You cant just force stuff from one country to another. Instead, Kraft Foods would redesign the way it, and other firms, entered emerging markets. Khosla coauthored an article with Mohanbir Sawhney for Strategy+Business magazine, called Growth Through Focus, in which the authors details the many changes that took place at Kraft Foods to succeed in developing markets. A typical growth through and through more strategy, they write, diffuses the organizations efforts. It increases the complexity of the organization and its operations. Companies should not produce more to drive growth but should instead centralize its operations and strategy to achieve growth. The engines of growth, write Khosla and Sawhney, are focus ( few b rands, fewer categories, and fewer markets) and simplicity (simple survey, simplified execution, and simpler organizational designs). Kraft Foods would choose which brands have the best chances of winning in which markets and then supply its prudence and employees with an copiousness of resources to succeed. We have found that seemingly mature businesses can be energized by making fewer but larger bets. The executive team at Kraft had a strategy for winning but had to ensure that its employees at all levels understood and executed the strategy, so it came up with a vision statement or hook that would be communicated throughout the ranks, called the 5-10-10 strategy five categories, ten brands, and ten markets. 5-10-10 would help communicate to all employees exactly what the major priorities for the company would be, providing a sense in its culture that executive management was open and committed with its strategies and goals.After conducting several workshops with its managers and employees all over the world, where open and impartial feedback was encouraged, Kraft Foods decided that its best chance at winning would be to focus on two categories cookys and chocolate. Although it has been successful mostly in the linked States, Oreo had recently, in 2006, buy the farm the bestselling biscuit in China, due to new marketing and product development tactics implemented by a team led by Shawn Warren, wrong president of Marketing at Kraft Foods International.By focusing on China with the Oreo and taking focus away from other successful brands and emerging markets, Kraft Foods Inc. was making a big bet indeed. Breaking the Cookie Mold Recreating the Oreo for the Chinese Consumer What followed was a pore, open-minded market research project to find out why the traditional Oreo was not working in China and, more importantly, to figure out the kind of biscuit (called cookie in the United States) would appeal to Chinese consumers. The findings uncovered precis ely why the Oreo was not perioding on with the Chinese.It may seem obvious that different cultures have different tastes and norms, but sometimes it takes a lot of enthronisation in market research to discover exactly what those differences are and to send away from anecdotal opinions to actionable empirical evidence. First, the Oreo that had appealed to millions of Americans over the course of a century was simply too sweet for the Chinese palate. Put simply, the Chinese did not evently like the taste of the traditional Oreo. Research in like manner found that the cookie itself was too big and that the price of 72 cents for 14 Oreos was too high.Product Development and Recasting the Oreo Cookie In receipt to this new understanding of Chinese consumer opinions, Kraft Foods Asia Pacific division went to work to create the kind of product that might be able to catch on in the region. The Wall Street Journal reported that 20 prototypes were actual with reduced sugar content. Kra ft tested the prototypes to find a formula that Chinese consumers would find most appetizing. They did the same for packaging and pricing, subsiding on a package that cost 29 cents and contained fewer Oreos.Other product development innovations, based on market research insights, went foster in transforming the Oreo in China. Learning that demand for wafer-type biscuits was on the rise in China, Kraft introduced a wafer version of the Oreo that looked nothing like the one so well known in North America but tasted nearly the same as the cookie form, under its new Chinese balance of sweetness and chocolate. This new Oreo contained four crispy wafer layers filled with vanilla and chocolate cream, all covered in chocolate coating.Innovative product development followed to react to market research and attempt to tailor the marketing of the Oreo brand to the Chinese consumer. New filling flavors aimed specifically at the Chinese consumer were introduced, including green tea, orange, man go, and blueberry. In an interview with Retail in Asia, a web publication that covers Asia retail news, Kraft Foods Asia Pacific Sales vice president Andy Tosney described how Kraft Foods had even invested in new R&D to custom fit its Oreo brand products to suit the particular needs of the Asia Pacific consumer We discovered that biscuits and sweets snacking tends to be a cold go phenomenon, meaning that sometimes consumption tends to slow down if the temperature gets very hot. With this insight, we developed Oreo IceCream. The fillings in the biscuits have different ice-cream flavours. The advanced technology we use allows the ice-cream fillings to give out an amazing cooling sensation in the utter as though youre eating an ice cream. The product is improbably successful in China and Indonesia.Tosney added that Kraft had taken a further step of transforming its supply-chain logistics in order to ship the ice-cream-filled cookies from the colder northern China climates to the muc h hotter south of China. Kraft doubled its China sales force to sell these new products, truly bringing to bear the Focus through Growth model that Khosla and CEO Irene Rosenfeld were now championing for the entire company. It did not take capacious for these changes to take effect on the marketplace. In 2006, the Oreo became the number oneselling biscuit in China.From 2008 to 2010, according to Khosla in his Boston Consulting Group interview, revenues from the Oreo brand grew by more than 30 percent per year on average, with better-than-average margins. Before Kraft Foods big push in China, the biscuit and cookie market was not particularly profitable compared to other countries. The Wall Street Journal reported that the Chinese market for biscuits in 2007 was US$1. 3 billion compared to the US$3. 5 billion U. S. market. Now that Kraft Foods felt it had the products the Chinese postulateed, it had to let Chinese consumers know about it.Going Glocal with the Oreo Brand and the Mar keting Mix Kraft Foods innovative strategies to grow in China did not stop at new product development. To advertise the new, tailored Oreo brand, Kraft Foods had to apply the same locally focused thinking to advertising its products. Kraft did this through what Khosla has termed a glocal strategy. Glocal is the idea of utilizing a firms global financial and organizational muscle while localizing marketing leadership and tactics.The first step was to push larger marketing decision-making out of Kraft Foods headquarters just outside of Chicago, Illinois, United States, to the regional managers. The idea is simple but often unutilized by large multinational firms Managers who live in different markets surely know the markets better than the executives at headquarters. These local managers should be challenged to be entrepreneurial with their segment of the business and hence given control of a great deal of strategy and financial resources, resources that are typically centralized at home office.As Khosla and Sawhney write in Growth through Focus, decision making needs to be go closer to customers and consumers so that the people responsible for results have the operating exemption they need. Supported with corporal resources but free to choose how to utilize those resources, local managers are able to innovate and execute quickly, instead of waiting for corporate approval to undertake initiatives. Given this freedom, local managers in the Chinamarket innovated effective new ways to get the word out about the new Oreo to Chinese consumers.Important to the glocal ethos the company had now initiated, these managers developed marketing campaigns that utilized local means to target Chinese populations, while simultaneously supporting the Oreo brand, increasing its global equity. For example, advertising focused on teaching the Chinese consumer about the twist, lick, and dunk technique that is so popular in the United States. The new Oreo products introduced in C hina were designed intentionally to handle in that same experience, although in slightly different ways.Kraft launched a TV campaign where children were shown demonstrating the technique to their parents. Another TV ad featured a twist on this situation, with China-born NBA basketball star Yao Ming showing his son how to twist, lick, and, in particular, dunk an Oreo. In addition to the TV ad strategy, Kraft Foods know that mobilizing support on the ground was just as important as spreading the word on Chinas airwaves. To encourage the mating of milk with Oreo cookies, Kraft organized a grassroots campaign to get Chinese university students to do its marketing for them.Thirty Chinese universities were chosen to figure in an Oreo Aambassador program, drawing 6,000 applications from students. Three hundred of these students were chosen to become Oreo brand ambassadors, and they undertook a range of activities, including riding their rounds around capital of Red China with Oreo-bra nded wheel covers and organizing basketball games with a marketing angle of comparing dunking a basketball with dunking an Oreo in milk. Oreo samples were handed out to more than 300,000 customers. In a Wall Street Journal article on the Oreos success in China, Kraft Foods Inc.CEO Irene Rosenfeld called the Oreo bicycle campaign a stroke of genius that only could have come from local managers. The more opportunity our local managers have to deal with local conditions will be a source of competitive advantage for us. The Oreo Ambassador program was so successful that it has been extended to other markets, such as India and Indonesia, and each Oreo Ambassador iteration is promoted on Facebook and other social media sites, in order to reach active college crowds in these markets. ConclusionIn 2007, the year after Kraft introduced the new Oreo into the Chinese market, sales doubled, and the Oreo became Chinas number one cookie. Sales in China helped the Oreo brand to pass the US$1 bill ion mark in global sales. In 2009, Forbes reported that in the year expiry September 2009 Kraft Foods had earned a 22. 4 percent market share in the US$1. 6 billion cookie market. harmonise to Krafts website, China is now the second-largest market for the Oreo, after the United States. Kraft Foods glocal marketing strategy shows a new way for firms to carve up out into new markets and reach the new customers that the market research promises.Krafts strategy works because it is founded on the assumption that growing in a new, developing market is not necessarily an easy proposition and requires a deep level of understanding of the consumers in that market and a willingness to break substantial resources to create products and marketing campaigns that truly serve actual consumers. This may sound like Marketing 101, but the many examples of firms that have failed to crack hold of Asia-Pacific consumers shows that Kraft Foods execution of this strategy played a large role in the co mpanys success in this market.In an interview with Marketing-interactive. com, Kraft Foods Asia Pacific vice president of marketing Shawn Warren nicely states the difference between those firms that succeed and those who do not The importance of change from the I think culture to the I know culture, thats a vital lesson we learnt in China. Questions What did Kraft Foods Inc. learn about the Chinese consumer through market research that it did not know before? Do you conceive that the company reacted properly to the market research? How might they have reacted other than?What did Kraft do differently from other firms that try to grow through entering new markets? Do you think Krafts methods would work for all multinational firms trying to grow in new markets or regions? Do you think that the Oreo brand has been strengthened, or weakened, due to Kraft Foods actions of changing the Oreo cookie itself in other markets? Can you think of other brands that it would benefit to undergo a similar transformation? Which brands could lose value if a drastic product change were made? find of another developing market a firm may want to enter.How do you think this markets consumers might be different from Chinese consumers? How might they be similar? Could Sanjay Khosla and Mohanbir Sawhneys Growth Through Focus strategy can be applied to all companies? Which companies may not benefit from this growth framework? Further Readings References/Bibliography Chowdhry, Seema. Sanjay Khosla Khosla and the Chocolate Factory. Livemint. com, November 19, 2011. Accessed skirt 7, 2012. http//www. livemint. com/2011/11/18201634/Sanjay-Khosla Khosla-and-the. html. Finding the Right Blend Is Crucial Kraft CEO Irene Rosenfeld. The Economic Times, November 23, 2011. Accessed butt 7, 2012. http//articles. economictimes. indiatimes. com/2011-11-23/news/30433514_1_kraft-ceo-irene-rosenfeld-oreo-kraft-executives. Jacobson, Robert R. , and David E. Salamie. Kraft Foods Inc. International D irectory of Company Histories. Ed. Jay P. Pederson. Vol. 91. Detroit St. jam Press, 2008. 291-306. Jargon, Julie. Campbell Soup To Exit Russia Wall Street Journal (Eastern Edition), June 19, 2001 B9. . Kraft Reformulates Oreo, score in China. Wall Street Journal, May 1, 2008 B1. Khosla, Sanjay, and Mohanbir Sawhney. Growth through Focus A Blueprint for Driving Profitable Expansion. Strategy+Business 60. disdainful 24, 2010. Accessed environ 7, 2012. http//www. strategy-business. com/article/00034? gko=63292. Lautman, Victoria. Kraft Foodss Brand New World. Chicagomag. com, June 2011. Accessed March 7, 2012. http//www. chicagomag. com/Chicago-Magazine/June-2011/Kraft-Foodss-Brand-New-World. Ng, Erica. Profile Shawn Warren, VP Marketing Kraft APAC. Marketing-interactive. com, October 27, 2010. Accessed March 7, 2012. http//www. marketing-interactive. com/news/22808. Silverstein, Michael J. Sanjay Khosla on the antecedent of Focus An Interview with the President of Krafts Deve loping Markets Business. Bgc. perspectives by The Boston Consulting Group, December 5, 2011. Accessed March 7, 2012. https//www. bcgperspectives. com/content/interviews/consumer_products_globalization_khosla_sanjay_president_krafts_developing_markets_business. Talking Shop Kraft FoodsConquering the Asian Market with Global Thinking. Retail in Asia, February 8, 2011. Accessed March 7, 2012. http//www. retailinasia. com/article/sectors/food-beverage/2011/02/talking-shop-kraft-foods-%E2%80%93-conquering-asian-market-global-thin.