Kraft Lots Of Old Products Too Few Good New Ones

Marketing 9.2

Kraft:

Lots of Good Old Products; Too Few Good New Ones?

Kraft makes and markets an incredible portfolio of known and trusted brands, including half a dozen $1 billion brands and another 50 that top $100 million in sales. Beyond the Kraft label of cheeses, snacks, dips, and dressings, its megabrands include the likes of Oscar Mayer, Post cereals, DiGiorno pizza, Maxwell House coffee, JELL-O, Cool Whip, Kool-Aid, A1 sauce, Velveeta, Planters, Miracle Whip, Light 'n Lively, Grey Poupon, CapriSun, and Nabisco (Oreo, Chips Ahoy!, Triscuit, SnackWells, and a whole lot more). Search pantries and you'll find at least one Kraft product in 199 of every 200 households.

However, despite its long list of familiar brands, Kraft hasn't done very well in recent years. Over the past six years, its sales and profits have stagnated and its stock price has flat-lined. Investors would have made a better return on bank certificates of deposit than on their investments in Kraft stock. The problem? Until just recently, Kraft has done a poor job of managing the product life cycle. Although it's had a slew of good old products, it's had far too few good new products.

Many of Kraft's venerable old brands— such as Maxwell House coffee, Velveeta cheese, and JELL-0 dessert—have been showing their age. Other brands have been extended about as far as they can go—for instance, Kraft now markets more than 20 varieties of Oreos, from the original sandwich cookies, Oreo Double Stuf, Oreo Double Double Stuf, Chocolate-Covered Oreos, and Double Delight Chocolate Mint'n Crème Oreos to Oreo Mini Bites, Oreo Snack Cakes, and even Oreo ice cream cones. How much pop would yet one more variety provide?

Over the years, competitors such as P&G have invested dollars and energy in their mature or declining brands, such as Mr. Clean and Old Spice cologne, moving them back into the growth stage of the product life cycle. In contrast, Kraft has focused on cost-cutting, leaving its mature brands to wither. Whereas rival P&G has developed a constant stream of really new products—even inventing all new product categories, with products such as the Swifter sweeper and Febreze deodorizer—Kraft has

[KRAFT]

Welcome to the new

Chairman and CEO Irene Rosenfeld

Managing the product life cycle: Kraft CEO Irene Rosenfeld announces, "We are about to take this great portfolio of ours in a new direction that's more consistent with the reality of consumers' lives today. Welcome to the new Kraft."

been slow to innovate. And while P&G has been intensely customer-focused, bringing innovative new solutions to its customers, Kraft has slowly lost touch with its customers.

In 2006, however, under pressure from investors, Kraft installed a brand-new leadership team, including a new CEO, a first-ever chief marketing officer, and a leader of consumer innovation and marketing services. Under the leadership of CEO Irene Rosenfeld, the new leadership team laid out an ambitious turnaround plan to restore Kraft's sales and profit growth.

For starters, the team announced that it would make heavy investments to reconnect with customers and to improve product guality. To better understand what customers think and want, "We're going to connect with the consumer wherever she is," said Rosenfeld. "On the quality side, [we need to] shift from 'good enough' to 'truly delicious,' turning brands that [our] consumers have lived with for years into brands they can't live without." Most importantly, pronounced Rosenfeld, Kraft would invest heavily in innovation and new-product development. Simply put, she said, "We need to rebuild our new-product pipeline."

Rosenfeld and her team began their new-product development efforts not in the test kitchens but by visiting consumer homes, viewing the world through customers' eyes rather than through a company's lens. "We are about to take this great portfolio of ours in a new direction that's more consistent with the reality of consumers' lives today," she declared. We need "customer-focused innovation!" The team discovered the simple truth that with the way customers live their lives today, they want high-quality but convenient and healthy foods. "Wouldn't it be a whole lot easier if you could have restaurant-quality food at home for a fraction of the cost?" asked Rosenfeld.

The team also realized that Kraft already had all the fixings it needed to complete this mission. It needed only to reframe its offerings in ways that fit customers' changing lifestyles. For example, Kraft developed the highly successful "Deli Creations" brand—a build-your-own premium sandwich kit that includes bread, Oscar Mayer meats, Kraft cheeses, and condiments such as A1 steak sauce and Grey Poupon mustard. Customers can quickly assemble the sandwiches, pop them into the microwave for one minute, and wrap their mouths around a hot, restaurant-style sandwich. In a similar fashion, Kraft rolled out "Fresh Creations" salads, complete with Oscar Mayer meat, Kraft cheese, Good Season's salad dressing, and Planter's nuts, a move that took its product portfolio into a whole new section of the grocery store, the produce section.

In addition to creating new brands and categories, Kraft quickly launched a pantry full of new products under the old familiar brand names. For example, it introduced DiGiorno Ultimate, its best-yet alternative to delivery pizza, featuring premium vine-ripened tomatoes, whole-milk mozzarella cheese, specialty meats, and julienne vegetables. Under previous management, this project had been neglected because the premium ingredients were considered too

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Kraft

Kraft

Real

Marketing 9.2 Continued hard to get and too expensive. With Rosenfeld's approval, DiGiorno Ultimate was on the shelves in just 18 months.

Dozens of other new products ranged from higher-quality Oscar Mayer Deli Fresh cold cuts and an entirely rejuvenated line of Kraft salad dressings with no artificial preservatives to Kraft Bagel-Fuls handheld breakfast sandwiches, Cakesters snack cakes, healthy LiveActive products with probiotic cultures and prebiotic fiber, and Oscar Mayer Fast Franks prepackaged microwavable stadiumstyle hotdogs.

Kraft even invested to reinvigorate some of its old brands. For example, it added four bold new flavors to the Grey Poupon brand, a name that had retained 70 percent consumer awareness even without much investment. The new flavors will be supported by a fresh version of the old and much-liked Grey Poupon "Pardon me" ad campaign. Kraft is also infusing new life into existing brands such as Knudsen and Breakstone by co-marketing them with the LiveActive health brand. And, to get the word out about all its new products, Kraft invested an additional $400 million on a new marketing program designed to better tell the Kraft story. "We [are] telling the consumer that Kraft is back," said Rosenfeld.

And it appears that Kraft is back—or at least heading in the right direction. Although profits are still languishing, sales are now growing at a healthy clip. Rosenfeld and her team are optimistic. "Our brands are getting stronger every day," she says. "Our insights about consumers are deeper and richer than ever before. And our new product pipeline is flowing with exciting ideas that will accelerate our growth and improve our margins. I'm pleased to tell you, the new Kraft is taking shape."

Kraft has learned that a company can't just sit back, basking in the glory of today's successful brands. Continued success requires skillful management of the product life cycle. But Rosenfeld knows that Kraft still has a long way to go in serving up a tastier investment to shareholders. "It's time to grow. Our investors have told us that, and I would agree with them," she says. "But this is not [something] that'll get fixed in 60 minutes. We've [still] got some fundamental work to do."

Sources: Quotes and other information from Michael Arndt, "It Just Got Hotter in Kraft's Kitchen," BusinessWeek, February 12, 2007: "Kraft Highlights Growth Strategy, Reconfirms 2008 Guidelines and Unveils Product Innovations at CAGNY Conference," Business Wire, February 19, 2008: John Schmeltzer, "Foodmaker Whips Up Plan For a Comeback," Chicago Tribune, February 21, 2007, p. 1; and Kraft annual reports and other information from www.kraft.com, accessed September 2008.

Introduction stage

The product life-cycle stage in which the new product is first distributed and made available for purchase.

We looked at the product-development stage of the product life cycle in the first part of the chapter. We now look at strategies for each of the other life-cycle stages.

Introduction Stage

The introduction Stage starts when the new product is first launched. Introduction takes time, and sales growth is apt to be slow. Well-known products such as instant coffee, frozen foods, and HDTVs lingered for many years before they entered a stage of more rapid growth.

In this stage, as compared to other stages, profits are negative or low because of the low sales and high distribution and promotion expenses. Much money is needed to attract distributors and build their inventories. Promotion spending is relatively high to inform consumers of the new product and get them to try it. Because the market is not generally ready for product refinements at this stage, the company and its few competitors produce basic versions of the product. These firms focus their selling on those buyers who are the most ready to buy.

A company, especially the market pioneer, must choose a launch strategy that is consistent with the intended product positioning. It should realize that the initial strategy is just the first step in a grander marketing plan for the product's entire life cycle. If the pioneer chooses its launch strategy to make a "killing," it may be sacrificing long-run revenue for the sake of short-run gain. As the pioneer moves through later stages of the life cycle, it must continuously formulate new pricing, promotion, and other marketing strategies. It has the best chance of building and retaining market leadership if it plays its cards correctly from the start.

Growth stage

The product life-cycle stage in which a product's sales start climbing quickly.

Growth Stage

If the new product satisfies the market, it will enter a growth stage, in which sales will start climbing quickly. The early adopters will continue to buy, and later buyers will start following their lead, especially if they hear favorable word of mouth. Attracted by the opportunities for profit, new competitors will enter the market. They will introduce new product features, and the market will expand. The increase in competitors leads to an increase in the number of distribution outlets, and sales jump just to build reseller inventories. Prices remain where they are or fall only slightly. Companies keep their promotion spending at the same or a slightly higher level. Educating the market remains a goal, but now the company must also meet the competition.

Profits increase during the growth stage as promotion costs are spread over a large volume and as unit manufacturing costs fall. The firm uses several strategies to sustain rapid market growth as long as possible. It improves product quality and adds new product features and models. It enters new market segments and new distribution channels. It shifts some advertising from building product awareness to building product conviction and purchase, and it lowers prices at the right time to attract more buyers.

In the growth stage, the firm faces a trade-off between high market share and high current profit. By spending a lot of money on product improvement, promotion, and distribution, the company can capture a dominant position. In doing so, however, it gives up maximum current profit, which it hopes to make up in the next stage.

Maturity Stage

Growth Stage Product Images
Universal Attraction Law

Universal Attraction Law

For the intents of this book, the word spirituality concerns your collection of notions about reality, including your discernment of how reality works, as well as your personal role in the universe.

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