Introduction to case
For most of its 100-year existence, Oreo was consistently 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, learned from them changed its strategy and ultimately triumphed in winning over customers. This case illustrates a complete re-evaluation of the product, pricing, packaging, communication and distribution strategy of an existing Oreo brand in an international market. It can also be used to explore the global versus local mix that is needed for success in an international market, and to illustrate the strategies necessary to succeed in emerging markets like India and China.
Background and company profile
The “Oreo Biscuit” was first developed and produced by the National Biscuit Company (today known as Nabisco) in 1912 at its Chelsea, Manhattan factory in the current-day Chelsea Market complex, located on Ninth Avenue between 15th and 16th Streets. Today, this same location of Ninth Avenue is known as “Oreo Way.” The name Oreo was first trademarked
on March 14, 1912. It was launched that time as an imitation of the Hydrox cookie manufactured by Sunshine Company, introduced in 1908.
On March 6, 2012, the famous cookie brand, Oreo, celebrated its 100th birthday. From humble beginnings 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 advertising slogans from the 1980s, “America’s Best Loved Cookie”. But the dominant position in the US limited growth opportunities and spurred Kraft to turn to international markets. With China and India representing possibly the jewels in the crown of international target markets due to their sheer size, Oreo was launched in China in 1996.
Problem faced in entering Emerging Markets
Oreos haven’t always been popular outside the U.S. Kraft struggled for years in China after being launched in China, for instance, and considered exiting Chinese market several times. The cookie was spectacularly underperforming once said Sanjay Khosla, Kraft’s president of developing markets. One problem: Kraft offered Chinese consumers the same type of Oreos that it sold in the U.S. Kraft believed that what was good for the U.S. was good for the world.
After surveys showed that Chinese consumers found Oreos too sweet, Kraft put Andrade to work coming up with a new formula to better suit local tastes. In India, Kraft encountered the opposite problem: The American-style cookie was too bitter, Indians told researchers. Adjusting for local preferences isn’t a matter of just removing one ingredient said Andrade. It’s about making sure you balance the flavors. You almost have to reconstruct the product.
Strategy For Turnaround In China
Oreo had been an iconic product in US having been in the country for over 100 years. Kraft expected the brand to achieve similar success in China after its launch in 1996. But this was not the case as a result of which, Kraft had to rethink about adapting the product according to the needs of the Chinese.
The cookie when launches in China did OK but wasn’t a hit. The company even considered pulling out the brand out of China, but before doing so that they thought of conducting a research about why the Chinese consumers did not like Oreo. Kraft concluded from the research that Chinese found the cookie a little bit too sweet and a little bit too bitter and this is where the turnaround strategy of Kraft was focused.
The multi-pronged approach adopted by Oreo in China can be summarized as follows:
- Kraft’s Chinese division asked its headquarters to change the ingredients of Oreo so as to make it biscuits suitable for local tastes. Accordingly, 20 prototypes were developed and were tested on Chinese consumers and the formula which was most preferred was selected.
- Kraft also observed that the Chinese consumers were value conscious and considered the Oreo packets to be expensive. As a result of which the size of the packets was reduced so as to suit the buying habits of consumers. Moreover, very small packets were also introduced so as to give the consumers a first taste of the cookie.
- The introduction of smaller packs required adjustments in manufacturing plant. Similarly, marketing campaigns also had to be adjusted accordingly.
- Initially, the distribution was through grocery stores and hypermarkets. But later the convenience stores were used to enhance the distribution network. In Shanghai, Carrefour even offered Oreos by weight so as to give customers more control over the quantity that they buy.
- Recognizing the wafers were very popular amongst the Chinese, the team introduced chocolate covered wafer sticks. Convincing the senior management was a tough task, but eventually the product turned out to be big hit and was subsequently launched in other markets.
- Americans have tradition of pairing milk with cookies. Kraft began a grassroots marketing campaign so as to educate the Chinese consumers about this habit.
Strategy Used In India
The learning from Chinese markets were used by Kraft when they entered Indian markets. Initially Oreo was available in India only in imported form. As a result of this, it was priced at Rs 50 for a pack of 14. Due to prohibitive price coupled with lack of awareness, the sales were very low. At this point of time, global CEO Irene Rosenfeld decided to adopt localization strategy similar to the one used in China. This was helped partly by the acquisition of Cadbury in 2009.
As opposed to the Chinese, Indians love biscuits. India is world’s largest market for biscuits. But the market is dominated by low-cost glucose biscuits, and premium cream biscuits only occupy a small share. As a result, in order to capture the Indian market, competitive pricing and strong distribution were important components.
Oreo developed a strategy to take on the existing market leaders which included Britannia, ITC and Parle. Internally, they referred to this strategy as TLD (Take Leaders Down). Its focus was to target the 10 million households which consumed 70 per cent of the cream biscuits. It entered the Indian market as Cadbury Oreos as Cadbury had a better brand recognition among the Indian consumers when compared to Kraft. It has targeted the small towns and Kirana stores along with modern stores in big cities. As a result of this strategy its market share has grown from one per cent after its debut to 30 per cent.
Conclusion
Today, Oreo has become a global brand. It has presence in more than 100 countries. China is currently its No.2 market. This would have been highly impossible had there been no clear strategy from Kraft about approaching the Chinese markets. Manufacturing, marketing, distribution and packaging were properly aligned as per the market requirements. The decision to reformulate the Oreos according to the Chinese taste was a significant decision.
This case is a classic example of the dilemma which is faced by multinational corporations when entering foreign markets. The firms should be able to adjust to the local tastes. Oreo achieved success by integrating its global brand with local preferences.
References
http://www.canadianbusiness.com/business-news/industries/marketing-to-china-oreos-chinese-twist/
http://www.wsj.com/articles/SB120958152962857053
http://www.forbes.com/2009/12/08/china-oreo-tang-cmo-network-kraft.html
