Case Analysis - Kraft Food's Oreo and China

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Case Analysis

Kraft Food's Oreo and China

Case Analysis

In order for a business to be successful in another country besides the country that their business is based out of, a business must understand the market conditions of the particular country they are looking at investing their products in. A market conditions that a business must consider when making a move to another country includes that of how well their product will do in another country. If a business has not fully analyzed this concept, then their product may not do as well as they hoped for in that particular country and in all will have an effect on the overall revenue for the business. In this particular assignment, I will analyze the case of the Oreo cookie manufactured by Kraft Foods and it acceptance into the country of China. The case analysis of the Oreo cookie manufactured by Kraft Foods and it acceptance into the country of China will include a summary of the basic situation described in the case, a discussion of China’ market, a discussion of the changes in China’s marketplace over the last 20-30 years, an explanation of the efforts by Kraft Foods to enter China’s marketplace, and a discussion of the important factors that make entry into China’s marketplace challenging and potentially risky for Kraft Foods.

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Basic Situation

Kraft Foods is one of the world leaders in the production of beverages, snack foods, dairy products, and food (Kraft Foods, 2011). Kraft Foods began its company in the year of 1903 in Chicago, Illinois (Kraft Foods, 2011). Kraft Foods has expanded its business from Chicago to New York to international over the year which has contributed much to the success of their business (Kraft Foods, 2011). Kraft Foods began the manufacturing of the Oreo cookie in 1912 (Clement, S., Jain, T., Jose, S., Koellmann, B, 2013).

The basic situation in the case of the Oreo cookie manufactured by Kraft Foods and it acceptance into the country of China is how Kraft Foods did not anticipate the acceptance of their Oreo cookie in China to be unfavorable. Kraft Foods only marketed their Oreo cookie in the United States until the year of 1996 (Clement, S., Jain, T., Jose, S., Koellmann, B, 2013). In the year of 1996, Kraft Foods decided to market their Oreo cookie globally starting in China (Clement, S., Jain, T., Jose, S., Koellmann, B, 2013, para 3). However, Kraft Foods discovered that over the last 10 years, their Oreo cookie was not as favorable in China as it was in the United States (Clement, S., Jain, T., Jose, S., Koellmann, B., 2013, para 4).

The cause of this unfavorable accpetance of Kraft Foods Oreo cookie in China was mainly due to the business strategy of Kraft Foods. Kraft Foods decided it would be acceptable if they used the business strategy of their Oreo cookie just like what they used in the United States. However, this business strategy was not as successful as Kraft Foods would have hoped it would be. The business strategy of Kraft Foods and their Oreo cookie in the United States was that of a sweet and bitter cookie which was not accepted well in China (Clement, S., Jain, T., Jose, S., Koellmann, B., 2013, para 6). In addition to the Oreo cookie being to sweet and bitter for China, the price for a package of Oreo cookies was high which was not accpeted by China (Clement, S., Jain, T., Jose, S., Koellmann, B., 2013, para 7). This led to Kraft Foods evaluating how it could change their business strategy to adapt to the needs of China. After evaluating the Oreo cookie to the needs of China, Kraft Foods discovered that the Oreo cookie needed to make the Oreo cookie to contain more chocolate and less sugar in the cream filling (Clement, S., Jain, T., Jose, S., Koellmann, B., 2013, para 8). Kraft Foods also found that they needed to make the pricing of a package of Oreo cookies more reasonable to the Chinese market. Kraft Foods reduced their pricing of their Oreo cookie packages to $0.29 with less cookies in the package which is more sutiable for the needs of China’s people (Clement, S., Jain, T., Jose, S., Koellmann, B., 2013, para 8). With these adjustments to Kraft Foods Oreo cookie, may the acceptance of the Oreo cookie more favorable in China.

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China’s Market

It is essential for Kraft Foods to understand the market and retail market for cookies in China prior to conducting business in their country. However, Kraft Foods went into China with a mindset that their Oreo cookie would be well accepted without any modifications to their market and retail strategy. Soon Kraft Foods discovered that this was not the case and needed to make adjustments to their market and retail strategy in order for their Oreo cookie to be successful in China.

The United States market for cookies is favorable whereas in China it is in the middle. The people of the United States typically like their cookies more sweet and bitter whereas in China they do not care for that type of cookie. In order for the Oreo cookie to be as successful in China as it was in the United States, Kraft Foods needed to evaluate the flavor and type of cookies that the people of China cared for in which Kraft Foods complied too. In addition to evaluating the flavor and type of cookie the people of China cared for, Kraft Foods needed to evaluate the packaging and pricing of their Oreo cookies to meet the needs of the people of China. After evaluating the needs of the people in China for the packaging and pricing of their cookies, Kraft Foods discovered that they needed to reduce the amount of cookies in a package as well as reduce the price for a package of cookies. Once Kraft Foods was able to make these adjustments to their Oreo cookies to meet the needs of the people of China, then the acceptance and sales of the Oreo cookie increased in China.

The market and retail market of cookies in China was quite different than that of the United States which Kraft Foods was not prepared for. In the United States, the Oreo cookie is more accepted as a sweet and bitter cookie instead of more chocolate and less sugar in the cream type of cookie in which the people of China prefer. In addition to the type of cookie preferred, Kraft Foods is able to package more cookies in a package and charge more for the package compared to that of China. Once Kraft Foods was aware of these differences between the United States preference in an Oreo cookie and that of the preference of the Oreo cookie in China, Kraft Foods was able to bounce back from their poor acceptance of their Oreo cookie in China.

Changes in China’s Marketplace

China’s marketplace has increased over the last 20-30 years which has led to an increasing economy for China. Changes to laws and regulations by the Chinese government as well as changing their economy to more of a free market are what have contributed to the increase in China’s marketplace over the last 20-30 years (Berry, 2010, p.5, para 1).

China is considered an agricultural country in which it is expected to lead the world in agricultural in the next 10 to 20 years (Berry, 2010, p. 3, para 1). The agricultural goods that China is known for include that of tea, potatoes, rice, peanuts, wheat, cotton, millet, apples, oilseed, barley, fish, cotton, and pork (Berry, 2010, p. 16, para 4). In potato production and consumer, China is the world leader (Berry, 2010, p. 16, para 4).

Efforts by Kraft Foods to Enter China’s Marketplace

Kraft Foods decided to enter China’s marketplace with no modifications to their Oreo cookie. Kraft Foods learned that this was not the ideal approach in making no modifications to their Oreo cookie for the Chinese market. Kraft Foods discovered not only did they need to make the Oreo cookie with more chocolate and less sugar cream to meet the needs cookie needs for the people of China but also later discovered additional modifications needed for their Oreo cookie (Jargan, 2008). Kraft Foods decided to tailor the Oreo cookie to meet the needs of the people of China a step further. In 2006, according to Jargan (2008, para 16), Kraft Foods decided to tailor the Oreo cookie to meet the needs for the people of China to “consist of four layers of crispy wafer filled with vanilla and chocolate cream, coated in chocolate.” With this tailoring to the needs of the people of China, the Oreo cookie became China’s top cookie seller in 2006 (Jargan, 2008, para 19). The new Oreo cookie in China was outselling the original Oreo cookie in China which led to Kraft Foods sell them in Canada, Asia, and Australia (Berry, 2008, para 19). Once Kraft Foods decided to make modifications to their Oreo cookie in China, it led to the success of their product in China.

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Important Factors

The two most important factors that I feel make the entry into a host country’s marketplace challenging and potentially risky for a United States company includes that of not understanding the needs of the host country’s needs and not having a specific business strategy in place prior to entering a host country’s marketplace. It is essential for a company to understand the culture and needs of the host country prior entering that particular country with their product. Countries may differ from each other based on their cultures in which a company needs to understand in order to be successful in that particular country. Companies need to have a business plan tailored to that particular country prior to conducting business in that country. A business strategy that works for one country may not necessarily work for another country. Having a business strategy that is tailored to a particular country, can aid in the success of that company when entering into a country to conduct business.

References

Berry, B. (2010, June). Agri-Food Past, Present, Future China. Retrieved December 18, 2013, from Ats-sea.arg.gc.ca: http://www.ats-sea.agr.gc.ca/asi/pdf/3833-eng.pdf

Clement, S., Jain, T., Jose, S., Koellmann, B. (2013, March 31). Smart cookie. Retrieved December 18, 2013, from Businesstoday.com: http://businesstoday.intoday.in/story/how-kraft-foods-won-over-customers-in-china-and-india/1/193162.html

KraftFoods. (2011, September 6). Brief History of Kraft Food's. Retrieved December 18, 2013, from Kraftblogr.blogspot.com: http://kraftblogr.blogspot.com/2011/09/brief-history-of-kraft-foods.html

Jargon, J. (2008, May 1). Kraft Reformulates Oreo, Scores in China. Retrieved December 18, 2013, from Wsj.com: http://online.wsj.com/news/articles/SB120958152962857053