Kraft Food Inc. was formed with the aim to consolidate the ice cream market in North America. The firm is one of the world’s largest food and beverage supplier and operates in more than 150 countries. Through acquisitions and mergers, the company has expanded into various product portfolio and different markets globally. Products that the company offers include snack food, beverages, cheese and dairy foods. The organization relies on marketing and advertising to sell its products across the world (Clements, Jain, Jose & Koellmann, 2013). Kraft Food Inc. has experienced various fallouts in its past acquisition deals; however, the company managed to learn from its mistakes and triumphed. Using the Porter’s five forces, this report will provide an analysis of Kraft’s strategic plan to expand into international markets. Besides, the report will explain the type of markets to target in the short-term versus long-term and the development of a strategy for a new product. Lastly, the report will explain how to apply the strategic planning model and measure the company’s success in implementing the product strategy.

Porter’s Five Forces

Kraft Food Inc. operates in the food and beverage industry; therefore, in the process of analyzing its current market situation, one must examine the competitive nature of the industry. The Porter’s five forces will help to provide a detailed analysis of the intensity of the competition. First, Kraft’s strategic plan to expand into international market depends on the bargaining power of suppliers. Precisely, it entails suppliers’ power in driving up the costs of input (Tallman, 2009). Markets such as China and India have several local and international players. In such a situation, there is high competition in the food and beverage industry. Kraft Food Inc. can source its raw materials from a variety of suppliers. For the company to get the best price to sell its cookie brand Oreo, it must import its raw materials from international suppliers since they do not hold much power in the food and beverage industry. Similarly, since suppliers would like to stay in business, they will tend to offer competitive prices. Although companies that market products can use hedging and financial derivatives to maintain consistent margins with those that process agribusiness commodities, the rising costs of inputs is a major challenge to the industry. Kraft’s valuable input commodities include sugar, cheese, cocoa, and coffee. Therefore, the use of hedging would minimize its exposure to rising costs of input.

Second, Kraft’s strategic plan depends on the bargaining power of buyers in the market. According to Tallman (2009), the competitive nature of international markets gives buyers freedom to switch their demand to companies that offer quality and low price goods. When Oreo cookie was launched in China, the 72 cents price for a pack of fourteen Oreos seemed too expensive for the Chinese market (Clements, Jain, Jose & Koellmann, 2013). The existence of competition in the food and beverage industry makes it difficult for firms to raise prices. Companies such as Wal-Mart control prices of goods and this is one of the factors contributing to Kraft losing profit. If a firm does not negotiate with Wal-Mart on prices, then there is a possibility that Wal-Mart will pull products and reduce sales volume of the company. Wal-Mart’s power to control prices exerts pressure on margins and sales of most companies in the industry. Moreover, with plenty of competitive companies such as Britannia, Parle products, and ITC, consumers have plenty of options to decide what they want. Therefore, Kraft Food Inc. has been forced to sell their products at lower prices in the Indian and Chinese markets.

Third, Kraft Food Inc. faces a threat of new entry. The ease with which new firms can enter the industry depends on the barriers to entry. In situations when there are low barriers to entry, more firms can enter into the industry, and this would reduce the attractiveness of the sector while increasing the competition (Ferrell & Hartline, 2011). The food and beverage industry are already competitive with the existence of many players in the market. Since existing firms in the food and beverage industry have already spent on partnership, research, and development, branding, and scale of production, it is hard for new entrants to match that expenditure. In addition, a new entrant to the market must be willing to offer consumers with same quality of products as the existing ones (Tallman, 2009). Similarly, they would only steal the market share by beating the current companies on prices. Another barrier to entry is the high cost of marketing and advertising. Firms spend a significant amount of resources on marketing and advertisements to induce consumers into switching to their products. Firms that managed to enter the industry are more likely to be acquired by companies such as Kraft. Therefore, Kraft Food Inc. faces a minimum threat to entry by a larger player in the industry.

Fourth, with the intensity of rivalry, the industry is characterized by stiff competition. Firms in the food and beverage industry focus on preserving and increasing their market share. The intensity of rivalry depends on the size of the industry, the cost structure of the industry and product differentiation. Firms in this industry preserve their market share through diversification and inducing brand loyalty among their consumers. The products offered by Kraft are highly elastic. Therefore, consumers will always compare the price and quality offered by firms in this industry. Since consumers have minimal switching cost, firms will maintain their market share by providing new and innovative products, and branding quality at reasonable price (Ferrell & Hartline, 2011). Mostly, firms develop innovative products through acquisitions or mergers. Since consumers determine market shares through their purchasing habits, Kraft must adequately use advertising and marketing to promote its brand awareness in the international market. When all companies promote their brands, consumers will develop perceptions that brand name products possess superior quality and elegance compared to private label products.

Fifth, threats of substitutes are significant in the determining the strategic plan to expand into international markets. The degree to which consumers substitute good and services depend on the cost of switching to substitutes, their willingness to substitute, and the price and quality of the substitute products. Private label products in the market pose a great threat to the industry and profits of firms. Precisely, in the European market, hard discount retailers emphasize on offering own-label products that are direct substitutes for the brand name products (Ferrell & Hartline, 2011). Similarly, the existence of these products prevents companies from raising prices. Products in the food and beverage industry are elastic; therefore, any increase or change in price would adversely affect the company’s sales volume. Threats posed by private label products affect Kraft profits because the firm cannot pass the high costs of input to consumers. Moreover, in international markets, the effects of private label products are amplified because they are widely accepted in those markets. To counter threats from private label products, Kraft, and other firms in the industry have increased their expenditure on marketing and advertising to promote brand awareness.

A target market refers to a specified group of customers that the company aims to offer its products (Ferrell & Hartline, 2011). It is hard for a company to define its target markets when the product offered has a wide appeal, or the company has a diverse customer base. Also, when identifying a target market, the firms must consider buying cycles, product shelf life, and long-term profit potential. In determining markets to target for short terms versus long-term, I will consider the following situations. First, I will start with examining the existing customer base. When researching the target market, it is important to start with the customers who already buy your products to identify the common characteristics that they share. Second, after identifying the common characteristics among my customers, I will use this information to refine my target market. Refining market segmentation is critical in helping you to understand how the product appeals to customers within your target market (Ferrell & Hartline, 2011). In the case of international markets, the company will segment the target market geographically into the American, European and Developing markets.

A successful introduction of a new product in the market can boost the sales and market share of the firm. Currently, the Oreo brand is present in more than 100 countries due to product development strategy (Clements, Jain, Jose & Koellmann, 2013). A new product development entails the process of introducing a new product to the market. The development of a strategy for a new product requires the following considerations. First, one needs to engage in research and development. A successful product development strategy required one to investigate and assess the use of new technology, materials, and processes that would be useful to pursue the strategy. Second, it is necessary to assess customers’ needs. The marketing department can make use of user groups and questionnaire to get information about the customers’ perception about the products. In situations when you have a team in a customer-facing role, you might gather data with negative views about the product; however, such information will be useful in meeting the needs of the customers. Third, I will develop a strategy for a new product through brand extension. Precisely, you can launch a new product in the market using an existing brand name in a different category. For instance, since Oreo is a known brand internationally, I can use it to launch my new product.

Regarding the strategic planning model, the key elements of the strategic plan include the following. The first element of the model concerns where we are as a business. With this element, the team should have full knowledge of the business including the profits and loss is makes and daily operations. The second element concerns where you want to take the business. According to Abraham (2012), this element explains the objectives, goals, missions, and value of the business. The third element concerns what the business requires to reach its potential. This element entails the changes the team will bring to the current business to enable it to improve product quality, the image of the business and meet customers’ needs. On the other hand, strategic planning plays a critical role in implementing my product strategy. The strategic plan is significant in that it helps the team to determine the future of the business. Besides, it outlines the business goals thus allowing the team to understand the way forward of the business. The plan guides the business team on possible ways to respond to opportunities and threats (Abraham, 2012). The strategic plan ensures that the business attains its full potential through solving business issues, developing new products and expanding its operations.

References

Abraham, S. C. (2012). Strategic planning: A practical guide for competitive success. London: Emerald Group Publisher.

Clements, S., Jain, T., Jose, S., & Koellmann, B. (2013). Smart cookie. Business Today, 22(7), 108-112.

Ferrell, O. C., & Hartline, M. D. (2011). Marketing strategy. Australia: South-Western Cengage Learning.

Tallman, S. B. (2009). Global strategy: Global dimensions of strategy. Chichester, West Sussex: John Wiley & Sons.

 
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