Business Assignment

EXECUTIVE SUMMARY: For most of its 100-year existence, Oreo was America’s best loved cookie, but today it is a global brand. Faced with stagnation in the domestic market, Kraft Foods moved it into emerging markets where it made some mistakes, learnt from them and ultimately triumphed. This case study looks at the strategies used to win over customers in China and India. By STEPHEN CLEMENTS, TANVI JAIN, SHERENE JOSE, BENJAMIN KOELLMANN

March 31 2013 BUSINESS TODAY 109

CASE STUDY Oreo

SMA RT spurred Kraft to turn to international markets. With China and India rep- resenting possibly the jewels in the crown of international target mar- kets due to their sheer size, Oreo was launched in China in 1996.

The China launch was based on the implicit assumption that what made it successful in its home market would be a winning formula in any other market. However, after almost a decade in China, Oreo cookies were not a hit as anticipated, according to Lorna Davis, in charge of the global biscuit division at Kraft. And the team even considered pulling Oreo out of the Chinese market altogether.

In 2005, Kraft decided to re- search the Chinese market to under-

stand why the Oreo cookie that was so successful in most countries had failed to resonate with the Chinese. Research showed the Chinese were not historically big cookie eaters. According to Davis, Chinese con- sumers liked the contrast of sweet and bitter but “they said it was a little bit too sweet and a little bit too bit- ter”. Without the emotional attach- ment of American consumers who grew up with the cookie, the taste and shape could be quite alien. In addition, 72 cents for a pack of 14 Oreos was too expensive for the value-conscious Chinese.

Kraft’s Chinese division used this information to formulate a modified recipe, making the cookie more

chocolatey and the cream less cloy- ing. Kraft developed 20 prototypes of reduced-sugar Oreos and tested them with Chinese consumers before arriving at a formula that tasted right. They also introduced different packages, including smaller packets for just 29 cents to cater to Chinese buying habits.

The changes had a positive im- pact on sales and prompted the com- pany to ask some basic questions challenging the core attributes of the traditional Oreo cookie. Why does an Oreo have to be black and white? And why should an Oreo be round?

This line of questioning and an ambition to capture a greater share of the Chinese biscuit market led

C KIE XECUTIVE SUMMARY: or most of its 100-year existence, Oreo

spurred Kra markets. W resenting p

f iO n March 6, 2012, the fa- mous cookie brand, Oreo, celebrated its 100th birth- day. From humble begin-

nings in a Nabisco bakery in New York City, Oreo has grown to become the bestselling cookie brand of the 21st century generating $1.5 billion in global annual revenues. Currently owned by Kraft Foods Inc, Oreo is one of the company’s dozen billion- dollar brands.

Until the mid-1990s, Oreo largely focused on the US market – as reflected in one of its popular adver- tising slogans from the 1980s, “America’s Best Loved Cookie”. But the dominant position in the US lim- ited growth opportunities and

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I L L U S T R A T I O N B Y S R I S T I

108 BUSINESS TODAY March 31 2013

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Initially, successful brands begin with a tight core brand proposition which is often unique at the level of the prod- uct or product features. Just as McDonald’s was about ham- burgers and Starbucks about coffee, Oreo was about its distinctive cookie. As time goes by, consumers change and the company needs growth. Sooner or later, the brand faces an existentialist dilemma. Staying faithful to the traditional proposition would lead to brand irrelevance, while expanding it too much would lead to brand incoherence.

Continued success requires the brand to redefine its core, finding in it a proposition that is still faithful to tradi- tion, and yet encompasses modernity in a manner to keep the brand relevant, differentiated and credible. The rise of emerging markets with their different consumption pat- terns and greater diversity of income distribution questions the core proposition of many developed world brands. Just as McDonald’s had to realise it was about clean, affordable fast food and not hamburgers, Oreo had to go through a candid self-exploration. The new Oreo brand proposition is richer and more elaborate while allowing for brand growth and innovation.

Similarly, Starbucks realised that when China was going to be its second home market, coffee was not essential to the core proposition. This required a change in the logo and the word ‘coffee’ was dropped from it. In China, more than coffee, people line up at Starbucks for cold refreshments. However, brands are like rubber bands and can only be stretched so far in the short run. In the long run, they can often be more flexible than their brand managers.

Kraft to remake the product in 2006 and introduce an Oreo that looked almost nothing like the original. The new Chinese Oreo consisted of four layers of crispy wafers filled with va- nilla and chocolate cream, coated in chocolate. The local innovations continued and Oreo products in China today include Oreo green tea ice cream and Oreo Double-Fruit.

Another challenge for Kraft in China was introducing the typical twist, lick and dunk ritual used by American consumers to enjoy their Oreos. Americans traditionally twist open their Oreo cookies, lick the cream inside and then dunk it in milk. Such behaviour was consid- ered a “strangely American habit”, according to Davis. But the team noticed China’s growing thirst for milk which Kraft tapped with a grassroots marketing campaign to tell Chinese consumers about the American tradition of pairing milk with cookies. A product tailored for the Chinese market and a campaign to market the American style of pair- ing Oreos with milk paid off and Oreos became the bestselling cookies of that country.

The lessons from the Chinese market have shaped the way Kraft has approached Oreo’s launch in India. Oreo entered India through the import route and was initially priced at `50 (about $1) for a pack of 14. But sales were insignificant

BRANDS FACE AN EXISTENTIALIST DILEMMA

110 BUSINESS TODAY March 31 2013

“The new Oreo brand proposition is richer and more elaborate while allowing for brand growth and innovation” PROF NIRMALYA KUMAR, Professor of Marketing and Director of the Aditya Birla India Centre at London Business School

CASE STUDY Oreo

partly because of limited availability and awareness, but also because they were prohibitively expensive for the value-conscious Indian masses. Learning from the Chinese success story, the company under global CEO Irene Rosenfeld took localisation strategies seriously from 2007 on- wards. The $19.1-billion acquisition of Cadbury in 2009 provided Kraft the local foothold it needed in India.

Unlike the Chinese, Indians love their biscuits. Nielsen says India is the world’s biggest market for bis- cuits with a market share of 22 per cent in volumes compared with 13 per cent in the US. While the lion’s share of this market is for low-cost glucose biscuits led by Parle-G, pre- mium creams account for a substan- tial chunk valued at around `5,500 crore ($1.1 billion). The way to the Indian consumer’s stomach is through competitive pricing, high volumes and strong distribution, es- pecially in rural areas.

Oreo developed a launch strategy around taking on existing market leaders in the cream segment – Britannia, Parle and ITC. Internally, they even have an acronym for this strategy – TLD (Take Leaders Down). The focus was to target the top 10 million households which account for 70 per cent of cream biscuit con- sumption. Oreo launched in India in March 2011. It entered the market

March 31 2013 BUSINESS TODAY 111

T his is a good example of marketing excellence in three As in India: Availability, Affordability and Adaptability. The key to success in the Indian market is to pursue a balanced marketing effort in terms of the three As.

Availability is a function of distribution and value networks, which generates brand awareness when it goes along with well-devised advertising campaigns.

Affordable pricing is one of the strategic value propositions Kraft (Cadbury) is offering to valued consumers in India. Better or more-for-less is the mandate for the value proposition in this category. Arguably, where Oreo India made a difference in is the fact that it successfully overcame a real challenge each and every marketer faces to realise affordable pricing with profitability.

Excellence in adaptability to local culture also helped Oreo capture a share of mouths and minds. One of the key success factors for Oreo in India is replicating the learning from China in terms of the intangible brand promise more than tangible benefits like taste. The notion of togetherness fits the Indian context of valuing the family and resonates with the nuclear family in the expanding middle class. Togetherness has successfully created emotional bonding not only between the brand and consumers, but also between parents and children when they experience the brand through product consumption.

When Oreo enters smaller towns, it will be able to enjoy a sweet taste of the future as the case proves the existence of global or universal consumers in India.

AVAILABILITY, AFFORDABILITY AND ADAPTABILITY ARE KEY

“Affordable pricing is

one of the strategic value

propositions Kraft is

offering valued customers in

India” HIROSHI OMATA, CEO, Dentsu Marcom

e s e e s s d n ” A, m

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Adap pursu

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Af propo consu mand A

AVA AN

Premium creams account for a huge

chunk of India’s total biscuit market and are

valued at around

`5,500Cr

India is the world’s biggest market for biscuits with

a market share of 22% compared with

13% in the US

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BT receives scores of responses to its case studies. Below

is the best one on Burberry in the Feb 3, 2013 issue B

EST O

F T H

E LO TA

m barish Jam

bhorkar, A m

barishJam bhorkar@

torrentpharm a.com

The w ay sm

artphone sales are going north – as per CBS new s the w

orld has one billion active users – and data use is overtaking voice revenue, social m

edia m arketing is the future for branding and advertis-

ing This m eans custom

er approach w ill be precise in

STP (Segm entation, Targeting & Positioning). Also, as

discussed in the HBR issue of July-Aug’12 (Tw eet M

e Friend M

e M ake M

e Buy – Barbara Giam anco and Kent

Gregoire) this is the tim e w

hen the right use of social m

arketing m anagem

ent should be taught in business schools as a subject. I think Indian com

panies should start early and gain early.

A m

b a

rish J

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in s a

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sw eeten

ed to su it th

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pal- ate an

d K raft exploited C

adbu ry’s

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t u

sin g locally-sou

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odification of th

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In d

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d

p o

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ch ea

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ien ts, a

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p etitiv

e p rices. O

reo lau

n ch

ed its tradition al ch

ocolate cookie w

ith van

illa cream at `5

for a pack of th

ree to drive im pu

lse pu r-

ch ases an

d trials, `1 0

for a pack of seven

an d `2

0 for a pack of 1

4 for

h eavy u

sage. T h

e cookie looks th e

sam e as its in

tern ation

al cou n

ter- part w

ith a m

otif of 1 2

florets an d 1

2

dash es.

T h

e co m

p a

n y

m a

in ta

in ed

th e

h erita

g e o

f th e b

itter ch o

co la

te cookie w

ith sw

eet van illa cream

to stan

d ou t from

m e-too produ

cts an d

m eet cu

stom er expectation

s of h av-

in g

th e rea

l th in

g . K

ra ft in

itia lly

ch ose to ou

tsou rce its m

an u

factu r-

in g for th

e In dian

m arket in

stead of u

sin g C

adbu ry factories.

C om

m u

n ication

an d advertisin

g

h ave been

con sisten

t across th e w

orld a

s th e co

re cu sto

m er rem

a in

s th e

sam e. T

h e com

pan y focu

sed on u

sin g

th e togeth

ern ess con

cept to sell O reos

in In

dia, w ith

television form

in g th

e m

ain m

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of com m

u n

ication al-

th ou

gh oth

er m edia are also bein

g tapped. O

reo In dia’s Facebook page is

o n

e o f th

e fa stest g

ro w

in g

in th

e w

orld. T h

e com pan

y also w en

t on a

bu s tou

r to pu sh

th e con

cept of to- g

eth ern

ess a m

o n

g fa

m ilies a

cro ss

n in

e cities an d it u

sed a sm aller veh

i- cle for a sim

ilar cam paign

across 4 5

0

sm all tow

n s. O

reo is drivin g poin

t-of- pu

rch ase sales w

ith store displays

an d in

-store prom otion

s in a bid to

o v

erta k

e m a

rk et lea

d er B

rita n

n ia

G ood D

ay’s distribu tion

. W

ith a strategy focu

sed on rapid

bran d aw

aren ess an

d exten sive dis-

tribu tion

, th e O

reo In dia lau

n ch

story h

as been a su

ccess so far. Its m

a rk

et sh a

re h a

s g ro

w n

from

a little over on e per cen

t after its debu

t to a m assive 3

0

p er cen

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b iscu

it m

a rk

et. A s a

w a

ren ess o

f th e

O reo

b ra

n d

g ro

w s in

In d

ia ,

K raft is lookin

g to sh ift from

th e

C adbu

ry distribu tion

n etw

ork to a w

ider w h

olesale ch an

n el. It is

a lso

ey ein

g k

ira n

a sto

res a n

d sm

all tow n

s apart from m

odern

stores in big cities.

T oday, O

reo is m ore th

an ju

st an

A m

erican bran

d. It is presen t in

m ore

th an

1 0

0 cou

n tries, w

ith C

h in

a oc- cu

pyin g th

e N o. 2

slot. Seven years

ago, th is w

as h igh

ly im probable. ~

(This case study is from the A

ditya B

irla India C entre of London B

usiness School.)

W h

at can w

e learn from

K raft

F ood’s experiences in India and C

hina? W

rite to btcasestudies@ intoday.com

or post y

ou r com

m en

ts at w w

w .

businesstoday.in/casestudy-oreo. Y our

view s w

ill be published in our online edition. The best response w

ill w in a

copy of M

a rk

etin g a

s S tra

tegy b

y

N irm

a ly

a K

u m

a r. P

reviou s case

studies are at w w

w .businesstoday.in/

casestudy.

The M ade in

India tag m eant

using locally-sourced ingredients and

m odifi cation of the recipe to suit Indian tastes

C A

SE STU DY

Oreo

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