Kraft Foods Inc. – Marketing and Managing the Customer Relationship

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The globalization of the food industry has revolutionized the processing and distribution of food products in a manner that distinctly separates food production from food consumption (Murdoch & Miele, 1999). Given this circumstance, the bonds between productions and consumption are heterogeneous and consist of elements of technology and diverse socioeconomic producers, suppliers, and consumers (Murdoch & Miele).

Today’s food industry and associated systems is a complicated environment that is rooted in “cross-cutting affiliations, strong and loose connections, formal and informal relations, relations which empower and disempower as they bind people and places…tightly together” (Murdoch & Miele). The global expansion of the food market hastened in the 1990s and prompted local food producing organizations to search for new markets, identify and acquire necessary resources, leverage scale of economies, and outwit competitors to obtain new markets and a competitive advantage (Palich & Gomez-Mejia).

While there are numerous marketing models to facilitate global market penetration, firms may seek to enhance international market share on a country-by-country approach without a connection with their affiliates (Palich & Gomez-Mejia). Conversely, food companies that are currently in the global market may elect to align their marketing strategies across all affiliates. However, researchers suggest that some international food firms persist to create a homogenous buyers and sellers market which in turn fosters increased globalization (Palich & Gomez-Mejia). As a key producer in the international food market, Kraft Foods Inc. is worthy of an assessment and evaluation of its customer relationship and management marketing strategy.

Customer Relationship Strategy – Evaluation of Research

Founded in 1903, Kraft Foods Inc. (KFI) has grown into an international company that reaches a billion consumers in 150 countries (Kraft Foods Inc., 2006). With 25% of the firm’s sales and earnings generated beyond the borders of the United States and with an international food business that is the fastest growing affiliate, KFI realizes that the global food market is far from being homogenous (Kilts, 1990). Consequently, for KFI to maintain its market status and presence, continuous and comprehensive market research and evaluation is necessary.

Kraft performed a particular research study with an objective to “investigate the communication values of print and television separately, and in combination, and to determine the synergy between the two media” (Confer & McGlathery, 1991). The market research was performed over several years and divided into three phases. As presented by the authors, Confer and McGlathery: “Phase I involved testing methodologies to develop a workable technique to measure the synergy of TV and print…Phase II [was] the communication values study, and phase III [was] an actual market test”.

The market sampling was composed of mail intercepts and telephone interviews. Six hundred respondents were exposed to all Kraft’s commercials or print ads (Confer & McGlathery, 1991). Kraft’s advertisers provided information on targeted demographics, major competitors, product attributes shown in the campaign, print and media schedules, and 30 second TV commercials and related print ads (Confer & McGlathery). Research questions were identical for the controlled and test cell groups. From a multitude of products, respondents were asked to make brand selections; next, respondents were given magazines and TV shows to read and watch and later queried on specific magazines and TV shows; other research applications focused on brand recall and first and second brand selection; and the final test addressed competitive imagery section (Confer & McGlathery). Subsequent to testing, data analysis was performed to cover competitive imagery, brand selection, and brand recall (Confer & McGlathery).

Kraft performed similar market research initiatives in five separate countries. However, the methodologies were tailored to meet the requirements of diverse markets. The outcome of the market research program revealed that combining print ads and television commercials provided a robust and compelling set of customer communications (Confer & McGlathery). Hence, mixed-media delivers more value for Kraft than a singular advertisement campaign.

Management Marketing Strategy – Evaluation of Research

Kraft’s management performed an international consumer survey to determine if consumers were aware of the product quality and whether they were receptive to Kraft’s product quality (Kilts, 1990). After receiving a favorable survey response, KFI decided to produce an adaptive, revitalization, and business acquisition marketing campaign; tailored for specific foreign markets (Kilts). From a product adaptation perspective, KFI used market segmentation to isolate consumer needs and preferences. As such, researchers discovered specific consumer tastes that were differentiated from the U.S., Canada, the UK, Australia, to Spain.

These findings prompted KFI to customize its advertisements and communications campaigns to effectively reach five different markets (Kilts). Considering KFI’s global reach, opportunities from the firm’s cultural awareness and sensitivity has occurred as the firm pursues economies of scale, process improvements, and distribution efficiencies that are driven by new business transactions. Firms performing business in foreign markets may also elect to standardize their products to manage production and advertisement costs. However, due to diverse consumer needs and requirements, the risk may lead to unsatisfied customers. When a firm decides the change its products for adaptation reasons; that is changing the product’s physical characteristics or attributes and packaging, the company will incur additional costs such as manufacturing, marketing, packaging, and distribution (Calantone, Cavusgil, Schmidt, & Shin, 2004). An organization can make a creditable business case for product adaptation when the product modification develops into higher revenues and profits.

Kraft’s product brand managers developed ways and methods to revitalize existing food products to sell in foreign markets. The brand managers revisited products that were more than 35 years old and revitalized them by positioning the products as either mild, hot, or spicy and microwavable (Kilts, 1990). Consequently, product revitalization influenced consumer behaviors. Shortly after product revitalization, the initial response occurred when new customers became enticed by the repositioned products and younger consumers became interested in Kraft products (Kilts).

The utility of adaptive product marketing activities have benefited Kraft’s bottom-line. Taking a mature business with mature products, Kraft’s management has leveraged the consumers changing tastes and lifestyles to reinvent and bolster its products (Kilts). Next, Kraft’s management team investigated the high growth in the frozen food business. Their assessment revealed that due to changing lifestyles, demographics, single parent families, and two working parents that the frozen food segment presented a business opportunity (Kilts, 1990).

To take advantage of the frozen food market segment, Kraft made a strategic business decision to acquire several frozen companies (Kilts). The frozen food investments and acquisitions allowed KFI to reach a market niche that consisted of health conscious consumers. Kraft’s adaptive strategy has evolved into 14 frozen food product lines that the brand managers call Eating Right (Kilts).

Long-term Viability Model

As Kraft’s management team assessed the global competitive environment, they determined that their current business and marketing strategy was not capable of meeting and countering increasing market challenges (Christian, Govande, Staehle, & Zimmers, 1999). Confronted with global competition, Kraft elected to team with the Northeast Tier Ben Franklin Technology Center (connecting KFI with Lehigh University) to pursue a three-year strategic and tactical planning program to deal with the global market (Christian, et al). The teaming initiative focused on, as suggested by Christian, et al, “agility principles and practices as improvement guidelines”.

The agility structure leveraged four specific elements: 1) Outputs: to address product specific customer needs and wants, product cost and price were based on the customer’s perceived value; 2) Inputs: collaborative relationships with suppliers, distributors, customers, and competitors were introduced to provide cost-effective answers to customers; 3) External influences: focused on developing and entrenching an empowered culture that is flexible and dynamic, allowing Kraft to redesign its organization to meet various marketing opportunities; and 4) Internal operations: workforce management programs that supports information management, knowledgeable and skilled employees, and valuing innovation and creativity (Christian et al).

Within Kraft’s production plants, leaders took on a comprehensive improvement program that reached all areas of the facility. To support the tactical agility formula, KFI investigated process improvements to reduce downtime relative to product changeover. An assessment of inventory and production runs drove Kraft to incorporate computer applications to determine cost-effective and timely market forecast, production milestones, and inventory capacity without damaging customer delivery systems (Christian et al, 1999).

An investigation into the layouts of raw materials and finished goods storage capacity was undertaken and resulted in the firm’s reorganization. The reorganization layout initiative allowed Kraft to improve storage capacity by 20% and reduce raw material carrying capacity by 5% (Christian et al). The ultimate outcome of the agility principles program positioned Kraft’s managers and employees to understand and behave in a manner that was conducive to succeed in a competitive market environment. Thus, KFI’s leaders and employees had to improve and become agile to compete and survive in a challenging food industry.

Customer Management Practices

KFI’s executive leadership team believes that timely customer and market information fuels their business (Sneed, 1997). The firm positions market information in categories of on time, in time, and timely information. As such, at Kraft, marketing managers use information to influence sales, operations, and technologies decision-making. Relative to on time information, Kraft collects product concepts and consumer requirements from information channels, such as focus groups to manage timetables, to enhance cycle time, to position for effective response requirements, and to reduce product defects (Sneed). Kraft’s position within timely information centers on competitive challenges and threats, marketing expenditures across all product lines, and marketing-mix analysis (Sneed).

Finally, timing is an important component of Kraft’s management practices. For KFI, good timing is applied when market information and insights are circumstantial. Thus, under certain conditions, it is better to methodically and patiently reach market and business decisions. However, under different conditions swift decisions with minimal market information are necessary. As postulated by Sneed, “each year Kraft Marketing Information Department presents a company-wide assessment of consumer, food, competitive activities, and trends prior to…strategic and annual budget planning process”. Partnering with AC Nielsen to gather strategic market information, Kraft developed measurement and monitoring systems to track product sales to Hispanic and African-American markets. In addition, Kraft conducts proprietary research to become familiar with diverse cultural meal preparations and required food characteristics of various market segments (Sneed).

Marketing Theory Manifestations

Kraft’s marketing strategy takes on the form of complex adaptive systems theory. Researchers believe that complex adaptive systems have relevance for the local marketer (Wollin & Perry, 2004). A complex adaptive system suggests that individuals or consumers operate within an organism that is constrained by normative behaviors, policies, and values appropriate for seamless interactions (Wollin & Perry). A succinct example of complex adaptive systems is offered by Simon (2005), as such:

Ecosystems and the biosphere are complex adaptive systems, heterogeneous assemblages of individual agents that interact locally and that are subject to evolution based on the outcomes of those interactions. This evolution may simple involve changes in individual behaviors, such as animals that alter their bearings in group dynamics, or economic actors in the marketplace

From an organizational structural perspective, Kraft embraces the horizontal organization theory. While experiencing multiple problems with profitability, KFI’s management team, elected to embellish true growth vis-à-vis market challenges (Boehm & Phipps, 1996). Once Kraft realized that consumer value is more than harnessing market-based information, the firm decided that the entire operation, including every business units, was important to customer value management (Boehm & Phipps). To revolutionize the company, Kraft decided to enhance its relationship with customers by improving response time and effectiveness that was hindered under the stagnation of the old organizational structure (Boehm & Phipps). Hence, to manage increasing global market change and profitability, KFI pursued a horizontal structure. Essentially, the horizontal organization theory allows Kraft to spotlight customer needs and demands and design and build the organization around multiple work process flows (Boehm & Phipps). Thus, a horizontal structure positions Kraft to enhance is strengths and avoid trying to address its weaknesses. In the restructuring program, Kraft added new customer oriented processes along with their functional operations.

Conclusion

Kraft appreciates the makeup of a heterogeneous marketplace and strives to optimum its resources, business performance, and global presence through market segmentation. The company has annual programs to assess emerging customer needs and requirements through on time, in time and timely market research and unbiased market evaluation. Kraft applies market findings to pursue product marketing complexity adaptive systems strategies and programs, along with product revitalization and cross-marketing business acquisitions.

The firm has effectively penetrated the frozen food market by using customer information systems to leverage market demographics, lifestyles, family and parenting structures, health advocates, and diverse cultural meal preparations. To revolutionize the Kraft organization from an archaic food company to a contemporary global competitor, KFI’s leadership aligned with various consultant groups to shape a customer centric organizational culture centered on the principles and practices of agility. The agility initiatives and associated behaviors and expectations were methodically and systematically entrenched into KFI’s culture which complements the firm’s theoretical horizontal organizational structure. Thus, with the appropriate market information, market segmentation, and corporate agility and horizontal structure, Kraft Foods Inc. will remain a competitive force in the global food industry.

References
Boehm, R. & Phipps, C. (1996). Flatness: Horizontal organization [Electronic version]. The McKinsey Quarterly, 3, 128-143.
Calantone, R. J., Cavusgil, S. T., Schmidt, J. B. & Shin, G. (2004). Internationalization and the dynamics of product adaptation – An empirical investigation
Christian, P. H., Govande, V., Staehle, W. & Zimmers, E. W. (1999). Advantage through agility: Gaining a competitive advantage through agile manufacturing. Manufacturing, 31(11), 28-33.
Confer, M. G. & McGlathery, J. W. (1991). The research study: “The advertising impact of magazines in conjunction with television”. Journal of Advertising Research, 31(1), 2-5.
Kilts, J. M. (1990). The Journal of Consumer Marketing, 7(3), 39-45. Kraft Foods Inc. (2006). URL: http://www.kraft.com/default.aspx
Murdoch, J. & Miele, M. (1999). ‘Back to nature’: Changing ‘worlds of production’ in the food sector. Sociologia Ruralis, 39(4), 465-483.
Palich, L. E. & Gomez-Mejia, L. R. (1999). A theory of global strategy and firm efficiencies: Considering the effects of cultural diversity. Journal of Management, 25(4), 587-606. Simon, L. A. (2005). Self-organization and the emergence of complexity in ecological systems. Bioscience, 55(12), 1075-1079.
Sneed, P. A. (1997). Carpe diem, take advantage of time. Journal of Advertising Research, 31(1), 2-5.
Wollin, D. & Perry, C. (2004). Marketing management in a complex adaptive system: An initial framework. European Journal of Marketing, 38(5/6), 556-572.

1 COMMENT

  1. After watching your “One more bite!” (and other similar commercials) one time beyond my TOTAL B.S. limit, I have made up my mind that I will never buy a Kraft Foods product again. That includes my beloved KETCHUP. And Kraft cheddar cheese. And anything else with Kraft on the label.

    I mean, give me a break. Give PARENTS a break. Responsible parents do not chase kids around with a forkful of vegetables, pleading for them to succumb to the horrors of eating something green. Responsible parents do not bribe kids to eat healthy food. They don’t have to. They prepare nutritious meals (which may well include Kraft foods) and serve them to their families, and everybody eats. Happily. Because it’s good. It’s ALL good. And, if they are lucky, they have not watched rubbish commercials that teach kids to be rude and manipulative and parents to be pitiful idiots.

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