CASE REPORT

Kraft Foods: The Coffee Pod launch

by

Lucia Veronica Denis Senwayo

Q.1 Should Kraft use both the Maxwell House and Nabob brands for coffee pods?

Why? Why not?

Kraft Canada should use both Maxwell House and Nabob for coffee pods because it

would allow Kraft capture a larger market share position and aggressively act towards the

potential of P&G ability to capture more of the market from a spill over effect caused by

its Folgers brand and Home Café system. So, it means that if P&G go ahead the success

would spill over into the standard roast and ground coffee business.

If Kraft does not take this opportunity to increase market share position in the Canadian

coffee market would be inadequate considering the demand trend consumptions of coffee

in Canada. Thus, an early launch can help to maintain market share as well as gain

penetration into segments of the market that are not currently part of Kraft’s primary

costumers bases.

On its mission of achieving leadership in market it served which it pursued by fostering

innovation, achieving high product quality and keeping a close eye on profit margins,

Kraft foods achieved a world leader position in coffee with strong brand portfolio, strong

distribution network and well-earned reputation of developing innovative products and

food application. Kraft food can benefit from the established brand awareness of

Maxwell House and Nabob to launch the coffee pods. Although coffees pod was a new

product, being launch under well-known brand as Maxwell House and Nabob could

leverage the sales.

However, currently there is no marketing plan in place for the launch of coffee pod,

which involves branding strategy, pricing strategy, flavor offering, distribution, and

promotion strategy and also there is budget constraint to build awareness and articulate

the product benefits and value over the competition.

If Kraft use Maxwell House and Nabob for coffee pod should take some actions:

Target consumers between ages of 25-54 who are well-educated, high income,

married, and live in population rich urban areas characterized by high levels of

consumption.

Kraft is known for providing a better quality product at the right price compared

to the competition. So, Kraft should utilize a penetration pricing strategy.

Offer 6 or more flavors of coffee to compete with some brand such as with the

Melitta one-to-one SSP machine that offers 6 flavors, catering to the customer

demand for variety. So, consumers with different tastes can enjoy their own type

of coffee.

Prioritize trade shows and printing advertising, has it give more opportunity to

costumers get demonstration of how the product is easy to use as well as a sample

coffee.

In conclusion, despite of marketing plan constraint and budget limitation, Kraft should

use its existing two brands for coffee pods, so that could meet consumers trend and

compete with strong companies such as well as maintain leadership of Canadian coffee

market share.

Q.2 Which Channel of distribution would work best for single-serving coffee units:

direct to consumes, the use of intermediaries, or both? Why?

Both distribution channels (use of intermediaries and DSD) seem to show advantages and

disadvantages for Kraft. In that sense I will analyze the implications of each distribution

Channel and final address my opinion.

Intermediaries

Under this system Kraft is responsible for delivering all merchandise to the costumer’s

warehouses from this warehouses retailers distributed to individual stores. All inventory

were stocked at retail, however Kraft had to pay $200,000 for national listing fees.

The advantage of using this system is that Kraft does not need to monitor and track

inventories, distribution and stock. At the same time, by using distributors Kraft can

easily access to many retailers across the country, and respond to increasing demand in

peak season.

However, this system also shows some disadvantages. The first constraint is that even if

inventory-storing cost is low, using intermediaries Kraft has to pay national listing fee.

The second problem is that Kraft will have less control over product displays, obtaining

information about end users and exercising control becomes more difficult as the number

of channel levels increases. The third problem is related to the speed of distribution,

meaning that it will take long time to reach the end costumers comparing to DSD.

Finally, if Kraft considers earning the same profit in both channels, by using

intermediaries Kraft coffee pods retailing would be relatively expensive comparing to the

DSD where the number of intermediaries are reduced.

Direct-to-store delivery (DSD)

Manufacturer

Retailer

Costumers

Under DSD Kraft would be responsible for delivering merchandise to individual stores,

holding inventory and restocking shelves.

The advantage of using DSD was that this system was been using by Kraft for Mr.

Christie cookie product and they could joint and thus lowering the cost for coffee pod to

$150,000 by reducing supply chain expenses and minimizing inventory holding cost.

Under DSD Kraft have more control over product displays and freshness, improve

costumer service and collect insights from retailers. DSD also seems to be speed to

market, especially in peak season, has a result of eliminating warehouse on the network

distribution channel.

However, the down side of DSD is that since Kraft has limited space in its distribution

and limited delivery track, how to maintain the approach if coffee sales pod increase.

Additionally, with many stores across the countries, how would Kraft address the demand

in peak season and how would retailers receive DSD system.

In conclusion, since one of Kraft‘s major constraints is limited budget I would

recommend to use DSD that shows cost advantages compared to the use of warehouse.

Use direct-to-store delivery to lean the supply chain and establishing last relationships

with retailers who can provide benefits of better product display and promotion display in

stores. This would lower costs and ensure freshness of product. DSD would also allow

Kraft to compete by price and increase its sales revenue and also allocate remain budget

to advertising and promotional activities. In future, if demand increases Kraft should

increase its capacity or raise prices to lower demand or utilize existing intermediaries.

But, the last option is not appropriate in short run when the brand awareness of coffee

pod is relatively low. So, in short run DSD might the most appropriate to strength Kraft

brand portfolio.

Q.3 Presuming the primary problem with the launch had been the coffee makers

rather than the consumer acceptance of the single-serving size. What steps should

Kraft take to correct the problem?

When companies launch a new product and fail at product development or manufacturing

stage, the impact on brand image is critical because consumers that were loyal to its

brand can lose trust and then switch to competitor’s brand. The negative impact might be

extended on finance, as a result, of losses from recall.

In case of Kraft, if the new coffee pod fail as a result of coffeemakers mistake, the

company should immediately ask for recall and publicly apologize to costumers. This

would avoid misunderstanding that might be propagated by media and some competitors

that would take advantages of the problem, as well as Kraft would reduce the damage of

its brand image.

Immediately after recall Kraft should inspect the recalled coffee pod, analyze it and

identify the possible assignable causes. After finding the reasons of failure, Kraft should

do many trials and test as much time as possible and thus reducing the risk for failure. At

this stage prevention should prioritized rather than inspection because it is costless.

Kraft’s target costumers are educated people with high income and this segment is very

sensible and selective. In order to persuade them to buy Kraft’s coffee pod some extra

investment in print, web, TV advertising, would necessary. Kraft should emphasis coffee

pod on its magazine shared with subscribers. Additionally, Kraft should offer some price

promotions a little bit lower than competitors’ price. Finally, Kraft should offer some

coupons or sample of coffee pod along with existing products of its brand.

In conclusion, Kraft should re-launch the coffee pod, emphasis on prevention rather than

inspection of the product and focused advertising and promotional activities would be the

key factor of success in short run.

Q.4 An alternative strategy to selling coffee pods to consumers first would have been

to market them to other business, such as hotels, restaurants, and convenience

stores. Discuss the implications of using a dual channel marketing approach

Dual marketing channel would allow Kraft to reach the end-user costumers by using

more than one distribution channel. Kraft could at the same time reach its consumers

through a direct market or sell to another other business, such as hotels, restaurants, and

convenience stores that will reach the consumer through another channel or resale.

“By adding more channels, companies can gain three important benefits. The first is

increased market coverage—companies often add a channel to reach a customer segment

that its current channels cannot reach. The second is lower channel cost—companies may

add a new channel to lower the cost of selling to an existing customer group (selling by

phone rather than personally visiting small customers). The third is more customized

selling—companies may add a channel whose selling features fit customer requirements

better (adding a technical sales force to sell more complex equipment)” (Kotler: pp246).

Kraft can take advantage of all benefits listed above, but the first benefit might fit best

with Kraft intension of increase its market share. It means that trough dual channel Kraft

would reach many costumers that may not find under DSD and selling trough

intermediaries. Is important to recall that this range of costumers includes restaurants,

hotels and convenience stores, and the demand for coffee in this segment is relatively

significant. Kraft might take this opportunity to assign exclusive contracts with some

well-known restaurants and hotels offering them some discounts on exchange of

advertising Kraft coffee pod and thus leveraging its brand.

However, new channels typically introduce conflict and control problems. Different

channels may end up competing for the same customers. E.g. Convenience store Vs.

retailers. Additionally, as the new channels become more independent, the company may

have difficulty maintaining cooperation among all of the members. This might happen to

Kraft as a result of excessive competition in Canadian coffee market.

To sum up, dual distribution may bring advantages as well as disadvantages for Kraft. At

early stage of coffee pod, DSD seems to be more suitable for Kraft, but in long run

depending on market condition (demand and competition) Kraft may switch or increment

additional distribution channel.