Kraft Foods Inc Company Analysis
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|✅ Wordcount: 5105 words||✅ Published: 11th May 2017|
Kraft Foods Inc., the world’s second-largest food company, said second-quarter profit increased as improved performance in Europe and emerging markets offset weaker-than-expected sales in North America (Bloomberg, 2010).
Kraft’s Corporate Strategy
As stated in the Corporate Website, Kraft Foods Inc. aims to set their sights on becoming a global snacks powerhouse and unrivaled portfolio of brands people love. The complementary nature of Kraft’s portfolio is at the heart of the three strategies that will drive its growth:
Delight global snacks consumers. Consumers around the world are pressed for time and are looking for on-the-go options. They’re also looking for simple indulgences and healthier options. And there’s nothing better than a delicious snack, like LU biscuits, Planters nuts, Trident gums, and Cadbury or Milka chocolates to satisfy those desires.
Unleash the power of our iconic heritage brands. Our iconic heritage brands are loved by consumers worldwide. Roughly 80 percent of these heritage brands hold number one or number two positions in their respective categories and are household names.
Whether it’s regional brands, like Philadelphia cream cheese in Europe and Tang powdered beverages in Asia Pacific; or local favorites like, A-1 sauces in the US and Vegemite spread in Australia, we make delicious products for billions of consumers every day.
Create a performance-driven, values-led organization. To win in the market, we need to win with our customers and consumers, and with our colleagues, communities and suppliers. We’ll do this by living our values: We inspire trust; We act like owners; We keep it simple; We are open and inclusive; We tell it like it is; We lead from the head and the heart; We discuss. We decide. We deliver.
Delivering on these strategies will put us in the top tier of our peer group and provide our shareholders with top-tier returns on their investment:
Organic revenues growth of 5 percent or moreâ€¦
Mid- to high-teens marginsâ€¦
And EPS growth of 9 to 11 percent.
This report will further elaborate and analyse its strategies, to provide recommendations for continuous improvement.
Competitive strategy is concerned with gaining a competitive advantage in each of an organisation’s business units. According to Porter (1985), an organisation’s relative position within its industry determines whether an organisation’s profitability is above or below the industry average and the fundamental basis of above average profitability in the long run is sustainable competitive advantage.
Competitive advantage is a company’s ability to perform in one or more ways that competitors cannot or will not match (Philip Kotler, Gary Armstrong, 2007, p182). Thus, how to obtain the competition advantages for the organisation will be the key print in strategic planning and development.
As the Michael Porter’s theory, there are three different business-level strategies, namely, “overall cost leadership”, “differentiation” and “focus” (Gerry J., Kevan S., Richard W., 2008, p224). According to the different customers’ demand, this theory can be interpreted as five competition strategy options. They are price-based strategies, differentiation strategies, hybrid strategy, focused differentiation and failure strategies (Gerry J., Kevan S., Richard W., 2008, p225)
Kraft’s second strategy highlighted its aims on brand strategy
The role of the corporate brand is to give credibility in cases such as communication with government, the financial sector, the labour market and society in general (Urde, 2003 referred in (Xie & Boggs 2006). Anisimova (2007) highlighted that “corporate branding represents an opportunity for organizations to enhance and sustain their distinctiveness through linking corporate characteristics to products and services, thereby, allowing unique synergies to be developed”.
According to Daryl Fielding, Kraft Europe chief marketing officer, Kraft is moving brand strategy away from a focus on the product; to engagement in the world by connecting with something consumers are interested in already (Ingredients Network, 2010).
She was quoted by the news provider as saying Kraft will be using the Cadbury Olympic sponsorship campaign, Spots and Stripes, as a model for their future brand marketing. As part of the campaign, the nation are being asked to split into two teams – Spots and Stripes – to play the biggest and longest game ever.
Fielding also believes that “something has to change” in the relationships between brands and their agencies to declutter the decision making process. “To improve agency client relationships you need to have small teams. Creativity is fragile and its not objective so you need a tight pool of people working on ideas,” she says
Corporate image is the overall impression of an organization. Corporate image is the result of a process (Maclnnis & Price, 1987 referred in Ozer, 2004). This process includes ideas, feeling, consumption and experience retrieved from past usage. These all make an image of the organization (Yuille & Catchpole, 1977 referred in Ozer, 2004).
However as multinationals are moving from branding of the products towards corporate branding researchers are paying more attention to the effect of corporate branding (Olins, 2000 referred in (Souiden et. al. 2006). Different approaches and explanations have been proposed by different researchers for corporate branding. Olins, 1989(referred in Souiden et. al. 2006) gives three different approaches for structuring corporate identities: the monolithic (i.e. use one name and avisual style), the endorsed (i.e. the corporate identity is used in association with the name of Subsidiaries whose visual styles can be different), and the branded (i.e. the corporation’s product are under different brand names and appearances).
Multinationals are becoming aware of the importance of the names and trying to establish and create strong links between their corporate names and product names. Marketing theories suggest that corporate branding will boost the consumer awareness about the products as well as about the corporation (Souiden et. al. 2006).
A corporate brand is not necessarily limited to a single corporation (Xie & Boggs, 2006). Balmer(Referred in Xie & Boggs, (2006)) argue that corporate identity is an important asset for a corporation where its goals, values and ethics differentiate it from its competitors. However, (Xie& Boggs, (2006) states that it depends upon the market culture, market size and market circumstances, whether corporate branding is good strategy or any other branding strategy. These are wholly depending upon customer’s knowledge about market and product.
Corporate branding enables a firm to use one vision. It can increase firm’s visibility, recognition and reputation to a great extent as compared to the product/service brands (Xie & Boggs, 2006).Strong corporate recognition attracts the customers as well as employees.
Corporate brand leads to better corporate image in the mind of investors, employees and as well as in the minds of the customers. Corporate image is built after experiencing and consuming better and satisfactory services to the customers (Ozer, 2004). Explain that corporate image is directly proportional to customer loyalty in three sectors telecommunication, retailing and education. Customer’s pre-purchase behaviour about services has direct effect on corporate image (Ozer, 2004). Corporate branding involves all the stakeholders, has a multidisciplinary character and is targeted to internal as well external interests and networks. Corporate brands have small values that define the each brands offered by the firms and these values are intrinsic to the firm and part of its core ideology (Balmer, 2002 referred in Souiden et. al. 2006). Using corporate brand for marketing purpose is cost effect and has economic viability for many companies and also management of corporate brands become easier as compared to a portfolio of country or region specific brands each having its own particular characteristic. Corporate brands are differentiated; they can be communicated and are power sources of brand equity.
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Commitment for corporate branding is high in the sector of media and telecommunication, especially among top level management (Einwilles & Markuswill, 2002). Brand management is an integrated process which comprises of four main levels i-e planning, organizing, guiding and controlling (Einwilles & Markuswill, 2002). Planning is the most important factor for corporate branding for example branding team, brand name decision, branding strategies etc.
Brand management depends upon innovation, in terms of better and smart services with unique promotional mix, new prices and consumer demanded availability (Kay, 2006).
Brands have been described as one of the identifying and differentiating products and brand management has been restricted to product and product line decisions (Uggla, 2006). Defining brand is a very difficult task, there is no proper definition for the brand, it can be product, corporation, any person or any place. In brand management Brand is the unit of analysis i-e every aspect of the brand management is defined around the brand. For many product brand organizations like Unilever brand core value revolves around product itself where as for many others like MacDonald’s core brand value revolves around the corporate brand and brand is an extended part of this corporate identity. Brand must be distinct from others and it is difficult for many organizations (Kay, 2006). “Managing the brand by creating meaningful association is central task” (Kay, 2006 pp.746).
Customer and Corporate Branding in Telecommunication
Where factors like trust, image, and satisfaction are not easy to measure. But also factors like switching are not easy to measure because in this industry switching is more than simply walking to another snack rack for other brands.
The linkage between core values and corporate brand is described by a firms brand equity and competitive position (Ozer, 2004). A customer has brand building in his mind through the process of controlled and uncontrolled communication (Ozer, 2004).
Today, for every firm a critical question for its success is that how it can maintain its current customers and how it can make them loyal to the brands. Loyal customers pay important role in building businesses by making different moves like buying more, by paying premium prices and most importantly providing companies different sets of new customers by positive word of mouth (Ganesh et. al. referred in Aydin and Ozer, 2004). In fact telecommunication companies lose their customer quite regularly. So it’s very challenging task for the mobile phone operators to retain existing customers as well as bringing new customers towards their brands and creating loyalty in them.
Brand decision is a crucial matter and also it is a long time process. Kotler (1994) defines the process of branding decision as it involves many steps like brand or no brand, what type of brand is needed e.g. manufacturing, distribution. Then brand name decision, it is the most critical area which needs high attention. Brand name decisions are associated with operations of business. It also depends that how much a firm can invest in brand decision making process. Brand name decision is the most important factor in branding decision and for brand management. There are four main strategies for branding which are discussed by (Kotler 1994)
Multi brandBrand name
Source: Kotler 1994
Line extension applies in a situation when product is exists and company extends the same brand. In line extension there is something new to existing product like size, packing and so on. Line extension can be performed with corporate branding strategy. In brand extension product is new but brand name is old. In this situation old brand name has already recognition in the market so new product gets instant recognition and earlier acceptance. This strategy is also suitable for corporate brand. (Kotler, 1994).
Brand extension must be carried on in a sense that the new products have some features related to product /service’s use otherwise firm has to suffer for its existing brand. In the situation where new brand name with existing product is offered by the company, a separate brand name to each product to strengthen new product or defending the old brand from the effects of the new one brand (Kotler, 1994).
5. PORTER 5 FORCES ANALYSIS
5.1 RIVALRY CONDITION
There are two main players which are Coca-Cola and Pepsi Cola. According to “Top Carbonated refreshment brand in U.S 2006”, it is duopoly competition in U.S market share with 23% each (Appendix 7). Coca-Cola took advantage of Pepsi by entered markets earlier to set up its bottler’s and distribution networks in U.S market. Meanwhile Pepsi counterattack by competing more assertively in the growing economies when Coke is not as pronounced.
5.2 BARRIERS TO ENTRY
Coca-Cola developed the first non-alcoholic drinks in 1886 at Atlanta and it’s been 123 years. This brand has created a very strong brand value in global and it is a symbol of America; other new entrants may need to overcome tremendous marketing muscle. Advertising budgets are high, consumers are influenced by existing brand perceptions and Coca-Cola also ranked No.1 among others brand in soft-drink category (Appendix 8).
5.3 POWER OF BUYERS
Five principal channels which are food stores, fountain, vending machines, convenient stores and mass merchandisers. Bargaining power is none for vending machines as it directly goes to consumers with maximum profit. Fountain is the buyer with lowest profitable because of their large amount of purchases make allows them to have freedom to negotiate. Coke mainly considers this segment “Paid Sampling” with low margins. Food stores are buyers some what consolidated with chain stores and several local supermarkets, they deserve lower prices with premium shelf space offered. Convenient shops are scrappy and hence may need to pay higher prices.
5.4 POWER OF SUPPLIERS
Main inputs are sugar and packaging. Since the raw materials are commodities, thus, the creation power of suppliers is low. Majority of Cocaâ€‘Cola packages are 100 percent recyclable. Their subsidiaries of recycle factories are located worldwide for package development process.
5.5 SUBSTITUTE PRODUCTS
There are lots of substitutes like water, beer, power drinks, coffee and health care juices are available to the end consumers. Increasing of health awareness provide chances to substitutes to enter into the share market. Also soft-drink companies diversify business by offering substitutes to shield themselves from competition (Appendix 9). To sustain market share, Coca-Cola North America launched Sprite Green in 2008 and new premium ready-to-drink iced coffee in U.S. in 2007.
2.3.2 Application of Porter’s Five Force Framework in Kraft
The Porter’s Five Forces Model is used to understand the opportunities and threats for a company through its’ competitors. This model helps to access the potential opportunities Starbucks can enter if wanting to reach new markets. “It is clear that Starbucks has few major competitors, and the competition has nowhere near Starbucks’ volume of operations. Starbucks is the leading retailer, roaster and brand of specialty coffee in the world,” (Kembell). One of the threats facing the company is in cities that have small population bases. These cities prosper on smaller competitors that can take customers away from Starbucks if a store were to be put in a questionable area. Starbucks is known for its innovation and strong product differentiation within its industry. Shortly after Starbucks introduced the prepaid debit card, Seattle’s Best launched its version. This shows how Starbucks is a industry leader, however must be aware of the threats to potential entrants.
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Today, coffee is the second largest traded commodity in the world. Starbucks is directly affected upon by Central American to produce the coffee traded. As major suppliers worldwide have seen profits soar, the price of the coffee bean may be on the rise due to lower supply and heightened demand. “An over-crowded market will give the coffee suppliers bargaining power. There are no substitute products for the coffee beans Starbucks must buy. This is a potential threat to the company,” (Hanft).
2.3.3 Porter’s Generic Strategy
Figure 1a: Porter’s Generic Strategy Framework, 1980
Porter’s well-known generic strategy framework as described in Figure 1a, has recommended that in their search for sustainable competitive advantage, companies should choose between a cost-leadership or differentiation strategy, combined with a choice about the scope of the market they want to compete in. Porter argued that since each choice should be supported and implemented through relevant resource allocation decisions and other strategic actions, trying to do both would lead to inconsistency and the achievement of neither strategy, and a company would be “stuck in the middle” (Porter, 1980).
Porter (1998) further illustrated that competitive advantage may be achieved by:
Cost Leadership Strategy
In a cost leadership strategy, an organisation sets out to become the lowest cost producer in its industry to gain market share. Porter (1998) highlighted that “in the event of a price war, the organisation can maintain some profitability while the competition suffers losses….. even without a price war, as the industry matures and prices decline, the organisations that can produce more cheaply will remain profitable for a longer period of time. The cost leadership strategy usually targets a broad market”.
The sources of cost advantage are varied and depend on the structure of the industry, which may include the pursuit of economies of scale, improving process efficiencies, adopting proprietary technology, preferential access to raw materials, efficiency machines and other factors of cost advantage. Objectivity, if an organisation can sustain overall cost leadership, then it should not have query to be an above average performer in its industry. Each generic strategy has its risks, including the low-cost strategy. Low cost strategy is always a short term strategy because competitors can often imitate their strategies.
In a differentiation strategy, an organisation always seeks to be unique in its industry, offering something different to their customers and encouraging customers perceive to be better than or different from the products of the competition. It is generally rewarded for its uniqueness with a premium price.
Organisations that succeed in a differentiation strategy often have strengths in corporate reputation in offering quality and innovation products and services. Of course, its strong team with the ability to successfully communicate the perceived strengths of the products or services have gained widely recognition by the market.
This strategy do carries risks in imitation by its competitors and changes in customer preferences. To sustain this competitiveness, the organisation needs to be sensitive to the market demand and be ahead in product and service innovation.
The focus strategy rests on the choice of a narrow competitive scope to achieve either a cost advantage or differentiation within an industry. Because of their narrow market focus, that succeed in a focus strategy are able to tailor a broad range of product development strengths to a relatively narrow market segment that they familiar in.
Generally, organisations adopting a focus strategy often enjoy a greater customer loyalty and this entrenched loyalty discourages its competitors from competing directly. Of course, focus strategies do carried risks; include imitation and changes in the target segments. Also, the market size could always an issue for organisations pursing focus strategy. The targeted market segment should be big enough to provide an acceptable return so that the business can survive.
To-date, Porter’s generic business strategies have been widely adopted to create a defendable business strategy in order to gain a competitive advantage over other organisations in the industry.
2.2.1 Sustainable Competitive Advantage
Sustainable competitive advantage is the state at which an organisation realizes appropriate strategies that keep as a leader within the same line of production (Sultan and Simpson 2000). The level of sustainability is established with the efforts made by a particular organisation by building the appropriate plans to sustain the company’s growth even in the future (Gillan and Lall 2002). With the appropriate strategies in place, a company is able to establish itself well in the production line and increase its value to outdo others within the same line of production. On the same note, the other activity as noted is on the improvement of Human resource management (Ronan, Dolores, and Sharon 2003). The HRM of an organisation has always been deemed as operational and quite great for an organisation to be competitive with a particular market. These activities underlying these include employee recruiting, development, hiring, training, and compensation (Fernandes 2004). In most companies in the current state, sustainable competitive advantage is established thorough technology development within the organisation.
In the same line of argument competitive strategies are described as plans established by a particular organisation to help it lead others in the same line of production by becoming the preference of customers in the vast market (Gillan and Lall 2002). Most of these strategies are also inclined to the preference of the customer which is a way strategized to build loyalty in them. With loyalty established among customers, the company’s brand hits well in the market helping it lead others and increase its profitability due to increased production (Purcell and Toland 2004).
However, it appears that SIA has successfully combined differentiation in terms of market positioning and quality of offering, with a low-cost strategy in terms of internal operational costs to achieve economies of scale, cutting its costs at the same time serving a broad market. Indeed, both superior quality as well as high levels of efficiency has been part of the goals and objectives of SIA since its founding, which have been to:
deliver the highest quality of customer service that is safe, reliable and economical;
generate earnings that provide sufficient resources for investment and satisfactory returns to shareholders;
adopt human resource management practices company-wide that attract, develop, motivate and retain employees who contribute to the company’s objectives; and
maximize productivity and utilization of all resources.
From a resource-based view of strategy, all companies have resources (tangible and intangible) and various capabilities, or the ability to organize resources effectively and efficiently in the effort to realize their strategy. Capabilities are intangible, embedded in people, processes and culture; and they are much harder to copy than tangible resources, which often can be imitated successfully as long as funds are available. However, few companies have capabilities that satisfy the four criteria of being valuable to customers, rare, hard to imitate and hard to substitute. These capabilities can be referred to as core competencies that can lead to sustainable competitive advantage, and companies that nurture and develop them are more likely to achieve superior performance than their competitors in the longer term.
In SIA, the human resource development practices and the ability to align these practices with the business strategy appear to be a capability that satisfies the criteria for a core competence that has contributed to SIA’s sustainable competitive advantage.
2.4.1 Customer’s Preferences for Airline Services
Rhoades and Waguespack (2005) with an application of Value Chain Analysis describes that there are four aspects that airline passengers consider most significant in their flying experience. These aspects are particularly of concern to the customers because they use them to establish their choice and do away with what they regard as poor services from the distinct airline service providers (Lorenzoni & Lewis 2004). One of the key noted aspects by Gillan and Lall (2002) is care and Concern. Out rightly customers would love using the best service which has quality customer care, and that cares for them adequately care and concern fall as variables that develop customer’s loyalty to a particular service and without the same, it becomes quite difficult for a customer to make the right choice. The preference falls on the airline service provider which establishes ground and makes it strong while shining along and beating all its competitors.
Fernandes (2004) noted that spontaneity is also a critical aspect that a customer looks into when choosing a particular airline. Being spontaneous in customer service and decision making comes out alive and to the advantage of the service provider, and it gives a customer the confidence they want to a provider (Lorenzoni & Lewis 2004). Thus, it generates a competitive advantage for the particular company compared to the others. In this case, all strategies of that particular company point to having the best service quality and fast delivery which is what the customers’ desire when making a choice for airline service providers (Oum & Yu 2000).
Problem solving as noted by Archambault and Roy (2002) is the third aspect when it comes to establishing rapport with the customer and beating the odds to present formidable services to customers. Within the airline service, undoubtedly problems occur, and they piss off the customer. Issues to do with language loss, flight delays and other minor issues affect the company negatively if they are not handled appropriately (Lorenzoni & Lewis 2004). This is to mean that, under all circumstances airline service providers have to be conscious when it comes to solving up surging problems in the process of the organisational setting. Grant (2005) established an argument that those airline providers which have tasted success have been extremely keen to avoid problems and when these problems arise, they have been quick to find solutions to the same and thus win the confidence of the customers. On the same note, Archambault and Roy (2002) also noted recovery as the other aspect that takes note of service quality. It is apparent that customers want a quick service provider. In this context, when there are blunders or delays in service provision, the airliner which gets to win the day is the one that works out solutions fast. Sultan and Simpson (2000) noted that, in a case that was witnessed of fuel shortage, many airliners failed because they did not have appropriate solutions to the same. For those service providers which found a way out and established ground, they were hailed by customers and the loyalty inclined to them.
An international strategy is a strategy through which the firm sells its goods or services outside its domestic market” (Hill 378). One of the primary reasons for implementing an international strategy (as opposed to a strategy focused on the domestic market) is that international markets yield potential new opportunities.
Recommendation on strengths and weaknesses
In order to consolidate the strengths and solve the weaknesses also, SIA should manage people effectively to deliver sustained service excellence. Human assets are crucially important to service firms due to the inherent characteristics of the service industry. An additional characteristic of human resource management practices and the resulting quality of human resources is that they are difficult for competitors to imitate. Service quality is a core part of the ‘product’ and front-line staff tend to be the most visible element to consumers, hence significantly influencing service quality (Bowen, 2007). SIA’s Singapore Girls have become synonymous with the airline and the personification of quality service while most other airlines have not managed to ‘brand’ and promote their cabin crew as successfully. Further, from a customer experience point of view, consumers often see front-line staff as the firm itself. Front-line staffs at SIA are empowered to make appropriate decisions on customer service delivery and take corrective actions instantly for service recovery. Lastly, the front-line staff and service are inseparable from the brand, and the service experience informs customer perceptions on whether the brand promise gets delivered. SIA places heavy emphasis on all aspects of selection, training and motivation especially for its front-line staff.
Moreover, in order to reduce the numbers of dissatisfy customers, the Board of Directors should make concerted effort to stay in touch with customers through in-flight surveys, customer focus groups and rapid reply to every compliment or complaint they receive. Giving more convenient check in, additional baggage allowance, priority seating and waitlist and moreâ€¦ is also make customers feel more comfortable.
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