business management use the marketing mix theory to analyze the success of oreo in china

Market research had shown Oreo to make a mistake in productpositioningWith that alarming situation, Oreo''''s managers realized that a strategy moresuitable for Chinese consumers was needed

NATIONAL ECONOMICS UNIVERSITY

BUSINESS MANAGEMENT

TOPIC:

USE THE MARKETING MIX THEORY TO ANALYZE THE SUCCESS OF OREO IN CHINA

GROUP 3

Team Members: Nguyễn Cảnh Đức – 11200852 (Leader)

Đoàn Thị Minh Anh – 1120089

Lê Thị Ngọc Ánh – 11200466 Nguyễn Trường Huy – 11201801 Nguyễn Phương Linh – 11202201 Nguyễn Thị Kim Ngân – 11202753 Phan Diễm Phương Quỳnh – 11206763 Nguyễn Thu Đài Trang – 11207251 Nguyễn Ngọc Vũ - 11208498

Hanoi, Year 2022

TABLE OF CONTENT

II THE FAILURE IN CHINA FROM 1995 TO 2005 6 III THE ISSUES OF LAUNCHING NEW PRODUCT 7

EXECUTIVE SUMMARY

After a little growth in 2003, sales of Oreo cookies have fallen sharply, with an estimated 2005 drop of more than 10% Worse, the business almost lost money on every cookie sold Even increasing marketing costs by more than 40% can't help improve sales Market research had shown Oreo to make a mistake in product positioning

With that alarming situation, Oreo's managers realized that a strategy more suitable for Chinese consumers was needed and a multi-target strategy was put into action

- Introducing bakery products, Oreo cookies are less sweet as LightSweet Oreo

to better suit the tastes of Chinese consumers Cakes are packaged in smaller packages so that buyers can buy Oreo for the first time at a lower cost Similarly, promotional campaigns with bundles (when buying a large package) are changed by product trial programs in stores

- Replacing the former product with the new one with a smaller size and lower cost

- Expanding distribution channels from general stores and hypermarkets to retail stores convenience goods (which was growing rapidly at the time)

- Launching chocolate-covered waffles when it realized that the Chinese market was very interested in waffles

I INTRODUCTION

1 The company

Mondelez International, Inc often stylized as Mondelēz, is an American multinational confectionery, food, holding, and beverage and snack food company based in Chicago The company has its origins as Kraft Foods Inc which was founded

in Chicago in 1923 The present enterprise was established in 2012 when Kraft Foods was renamed Mondelez and retained its snack food business Mondelez enables people to snack right in over 150 countries worldwide With iconic global and local brands like Oreo, belVita and LU biscuits, Cadbury Dairy Milk, Milka and Toblerone chocolate, Sour Patch Kids candy, and Trident gum, they’re leading the future of snacking

With global net revenues of approximately $28.7 billion in 2021, Mondelez International is one of the world's largest snack companies They are the number one global leader in biscuits (cookies and crackers) and the number two in chocolate, while they are rapidly expanding in baked snacks In some markets, they also manufacture and sell gum and candy, as well as various cheese, grocery, and powdered beverage products

Mondelez International has operations in more than 80 countries and employs approximately 80,000 people in our factories

2 The product

Oreo is a brand of sandwich cookie consisting of two wafers with a sweet creme filling It was introduced by Nabisco on March 6, 1912, and through a series of corporate acquisitions, mergers and splits both Nabisco and the Oreo brand have been owned by Mondelez International since 2012 Oreo has become the world’s top-selling cookie and is enjoyed in more than 100 countries Many varieties of Oreo cookies have been produced, and limited-edition runs have become popular in the 21st century In markets around the world, Oreo comes in surprising local flavors, like blueberry and green tea ice cream, and fun shapes and forms But no matter where in the world you find Oreos, one thing remains right at the heart of milk’s favorite

cookie: the iconic “twist, lick, dunk” ritual that brings people together like no other biscuit can!

3 Background

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 Mondelez 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

Mondelez struggled for years after being launched in China and considered exiting the Chinese market several times The cookie was spectacularly underperforming once said Sanjay Khosla, Mondelez’s president of developing markets One problem is that Mondelez offered Chinese consumers the same type of Oreos that it sold in the U.S Mondelez believed that what was good for the U.S then

it was good for the world

II THE FAILURE IN CHINA FROM 1995 TO 2005

Oreo entered the Chinese market in 1995 However, sales of this item were very low By 2005, the world's leading brand of cream biscuits was a disappointment, despite China being a rapidly growing retail market After growing a little in 2003, sales of Oreo cookies decreased dramatically, with an estimated 2005 drop of more than 10% Kraft Foods lost almost every cookie sold Even increasing marketing expenses by more than 40% will not help improve sales! Market studies showed that Kraft Foods made a mistake for the following reasons:

- The sales and marketing strategies are copied exactly from the US market Advertising and shelf presentation are done face-to-face, while product packaging and pricing structure are almost similar to the US market

- Kraft Foods pays little attention to the preferences of Chinese consumers For example, the Oreo cookies intended for this market are too sweet It seems that

the characteristics of Oreo products are determined by the manufacturer, not by the taste of the market

- It refers to the price and the cover Particularly when it comes to food and snacks, the typical American's buying habits can be extremely different from those of a Chinese person When Oreo first debuted in China in 1996, a bag of

14 cookies cost 72 Chinese yuan This pricing is too high for Chinese people who prioritize value

➔ Shawn Warren - Kraft Foods' head of biscuits in the region realized that without a systematic change in strategy, the company might have to withdraw all products from the Chinese market Shawn Warren and his team will have to argue with headquarters in Illinois (USA) and convince senior management to come up with a strategy to make Oreo more suitable for Chinese consumers

III THE ISSUES OF LAUNCHING NEW PRODUCT

1 The merger

In 2005, bakery goods were the number one packaged food in China As a bakery, biscuits had done well—having grown by 8.4 percent annually between 1999 and

2004, with sandwiched biscuits like Oreo growing at 7.5 percent But as the market matured, this growth had slowed down Oreo had a successful initial launch in China and within three years, by 1999, had established a strong foothold After Kraft acquired Nabisco, the merged company with its expanded product line had become the largest biscuit company in China, with a 10 percent market share in the category Warren commented, “There was a fair amount of integration that happened pretty quickly, which created a fairly unwieldy brand portfolio.” It soon became apparent that the expanded portfolio was a collection of distinct brands, with noncomplementary sales efforts Warren worried that this larger portfolio was not being branded and distributed effectively The company lacked the focus and sufficient spending on any one brand, and by attempting to concentrate on all brands they ended up concentrating on none After the merger, sales of Oreo had been flat— growing at just over four percent annually Warren recalled, “When it was launched,

we used the U.S product, the U.S formulation, and the U.S advertising strategy,

which was very much the global practice But growth between 2000-2004 was stagnant Four percent is not good enough in China; anything below 10 percent is not growing at all.” This was extremely frustrating for the local office, which felt they had little say in major decisions about Oreo In particular, decisions about pricing and product innovation were completely centralised

2 A universal package

From 1996 to 2005, Oreo’s primary sales channel in China continued to be the medium-size grocery stores and foreignchained hypermarkets such as Tesco and Carrefour The biscuits came in the standard packaging that was used in other geographies—which was based on the U.S packaging that contained three partitioned rows of 12 Oreos Chun discussed the package size with Warren, “The current production is manufacturer-driven as they prefer producing packaged rows of all the same length, since it gives better efficiency and output But if we need to satisfy the customer, we might need to change.” Kraft would also run bonus pack promotions with extra Oreos in the standard package size This had been a highly successful strategy in the U.S., where having additional Oreos in the package strengthened the consumers’ perceived value

3 Competing cookies

Across China, competition in the biscuit market was strong Despite Kraft’s overall number one position, the company was trailing behind the competition in regions outside the north Oreo’s sales began to erode as competing biscuit sales grew Chun remarked, “When Oreo was first introduced in China, the types of biscuits in the Chinese market were limited The majority of the market was in sweet or savoury plain crackers At its launch, Oreo was considered a good innovation as it was in a sandwich cookie format But as we got into the later years, we started to see all different forms of biscuits appearing on the market Some of these products did quite well, like sandwich biscuits introduced by Taiwanese companies.” Taiwan-based Master Kong led the sandwich biscuit category with two brands that together held a national share of 32 percent of the market, well ahead of Oreo’s 19 percent Master

Kong brands were less sweet than Oreo, and more to the taste of the average Chinese consumer’s palate It was also offered in smaller packaging than Oreo, and contained just three biscuits However, since most packaging in China contained only two biscuits, Master Kong packages were perceived by consumers to be of good value

4 Selling at a premium

Oreo was priced at a premium and noticeably more expensive than competing brands on a per biscuit basis On a per package basis, the absolute price of buying Oreo was dramatically higher because of the large package size Distributors believed that the higher price and larger package size was a key factor behind the poor sales There were other concerns too

5 Distribution

Premium biscuits, like Oreo, generally contributed a smaller share of the final sale

to the distribution partner Kraft estimated that 60 percent of Oreo’s final sale price went to the distributor, whereas value biscuits, such as Master Kong brands, gave 70 percent of the final sale price to the distributor In stores, Oreo was given shelf space

in proportion to how well it sold Unlike the U.S., where companies could pay for more favorable shelf space, most grocery stores and hypermarkets in China would arrange their shelves based on their own sales data Although they would sell endcap space or prominent one-time displays, the most desirable shelf space in the aisles was reserved for best sellers – which did not include Oreo In 2004, 50 percent of all biscuit sales came from super/hypermarkets Although corner stores were the fastest growing sales channel for biscuits, nonetheless, internationally-chained hypermarkets were very important to Kraft’s distribution strategy as they maintained an expansive network of locations Whereas 65 percent of locally owned grocers had only one location, 60 percent of foreign chains had locations in at least five cities, with 30 percent present in more than 16 cities

6 Inventory woes

Kraft was not sitting idly as their biscuit sales tanked In 2003, the company increased marketing and communications spending by 40 percent in China—but the consumers did not respond By 2004, shipments for their entire biscuit line were down

12 percent Moreover, higher-than-expected inventories were driving up storage costs, and much of the stock had to be thrown out In late 2005, while Warren was wondering how to salvage the Oreo in China, he went back to a market research study that had been completed earlier that year in July The study tested a new Oreo product, LightSweet Oreo against the regular Oreo, and it revealed what the locaeam members already knew that Chinese consumers preferred a less-sweet biscuit

7 Barriers to launch new products

The study, however, could only estimate a preference for LightSweet at a 90 percent confidence interval Policy at Kraft required a 95 percent confidence to launch

a new product line, and several new product launches had recently already been canceled Convincing headquarters to go ahead with LightSweet Oreo would be difficult Warren elaborated on the company’s reluctance, “If you look back at it from

1912 to 1975, we did not have a single variant of the Oreo, just the black and white cookie Even in 1975, when the Double Stuffed came out, the only change was the extra amount of crème The next actual flavour took almost 100 years and came out in

2001, which was chocolate The original Oreo is what got us here.” Regardless, something had to be done quickly if Oreo was to stay in China A debate ensued— should the company focus on the core brands that had been underperforming, or spend

a lot of time and money on launching new flavors and varieties? Warren recalled Chun’s comment, “We need a mindset shift and to place a foundation for future success We have to decide what we want to achieve as the Oreo brand in China and how we can reset our strategies to get there.”

IV BUSINESS ENVIRONMENT

1 The economic and legal environment

- Economic environment

+ In 1996, the Chinese economy continued to grow at a rapid pace, at about 9.5%, accompanied by low inflation

+ influenced in part by the Asian Financial Crisis, with official growth of 8.9% in

1997, 7.8% in 1998, and 7.1% in 1999

+ From 1995 to 1999, inflation dropped sharply, reflecting tighter monetary policies and stronger measures to control food prices

+ The year 2000 showed a modest reversal of this trend Gross domestic product

in 2000 grew officially at 8.0% that year and had quadrupled since 1978 + In 1999, with 1.25 billion people but a GDP of just $3,800 per capita (PPP), China became the second largest economy in the world after the US According

to several sources, China did not become the second-largest economy until

2010

➔ By grasping the culture and consumption habits of Chinese consumers, Oreo was able to enter and adapt to the Chinese market despite the underdevelopment of the economy between 1996 and 2010

- Legal environment

+ Impact of the US-China trade war, exportation faced many difficulties (the US appreciated the high exchange rate of the US dollar), creating some barriers for China to penetrate in its market

+ Despite a number of steps taken pursuant to its international commitments, including removing non-tariff measures (NTMs) such as quotas and licensing requirements, China still maintains a large number of non-tariff administrative controls to implement its trade and industrial policies

+ In addition to quotas and licensing requirements, China also restricts the type and number of entities within China that have the legal right to engage in international trade Foreign exchange balancing regulations could also further restrict imports even for firms that possess the right to import Moreover,