Kraft s Cadbury Acquisition - Essay Example

I. Consider how the specific Indian cultural environment presents challenges to Kraft-Cadbury. Provide advice to the directors about the expected dynamics of the cultural environment on the companys operations. The cultural environment is one of the macro environmental factors that play a huge role in the success of a multinational company in a certain market (Cho & Padmanabhan 2005). While the other factors such as political, economic, social, and technological affect the companys operations in a more indirect manner, cultural factors have huge impacts on the companys sales. This is because, the sale of a product is a factor of the perception of the consumers, as well as the inherent tastes and preferences (Cho & Padmanabhan 2005). The differences in how certain products are also consumed and distributed are also part of the dynamics in the cultural environment that could impact a companys operations, especially in overseas situations. Receptiveness to Western products. Receptiveness to Western products is one of the challenges that Kraft-Cadbury faces when it comes to the mergers operations within the Indian continent. Because consumption is a function of taste, preferences, etc., the Indians slow responsiveness when it comes to the new tastes that Westerners bring can provide serious setbacks to the companys prospect for growth in the country. This is apparent in Cadburys slow growth during the past years, although the brand is the largest in the country. For instance, in the confectionery industry chocolate is still not the top picks for Indians when it comes to snacks. Mithai, an assortment of traditional milk-made sweets, is still the most preferred snack by the Indians, which has left chocolate consumption low in the country when compared to other countries where Cadbury also sells its products – in the UK for example. If chocolates do not delight the Indian palates more than the mithai, the chances that Kraft in succeeding marketing its food products to compete to the more traditional local alternatives will be slim. Distribution. The unique distribution system in the country is one cultural factor that is relevant to Kraft-Cadburys operations in India. Foods are distributed in a unique distribution channel called kirana stores – small mom and pop stores that sell products for retail. 98% of foods are still distributed among these stores, although supermarkets and hypermarkets are starting to become common. This has been a part of the countrys culture, and creating a supply-chain system in order to cater to this unique distribution channel is one of ways in order for Kraft to succeed in the local market. It is then pointless for Kraft to stock the shelves of supermarkets if the behaviour of the consumers say they acquire the products through a different channel. There will be a huge difference in the way Kraft does its channel marketing in its home country US and in Europe, and in India in order for it to effectively reach the consumers. Consumption behaviour. Consumption behaviour of the Indian people when it comes to food is also an important cultural factor that the merger has to consider when marketing its products. Consumption behaviour includes decisions that result in purchase, such as considerations for the products and the price. Because of the presence of many alternatives in the market that are low in price, Indians are more price-sensitive when it comes to sweets. In the past, when Cadbury has introduced certain products which are priced at a very high premium, locals find it too expensive and resort to the cheaper alternatives. These cheaper alternatives are due to the high supply in the market because of the low barrier cost to entry in the confectionery industry and fly-by-night competitors. What has been perceived as standard pricing across other different international markets where Cadbury operates in would be a bit an expensive pricing for the Indians, where the country is considered a snack haven, with a penchant for eating sweets. The local market also rewards innovative product, hence the link in product innovation and high consumer reception and consumption has been apparent in the success of an Itialian-Dutch confectioner which markets well-known brands such as Chupa Chups and Mentos; the company has been the first one to introduce centre-filled gums and candies in the country. II. Discuss the impact of the current economic global crisis upon the operations of Kraft both in the Indian subcontinent and on the other international activities of the company. Recession in the US. The global economic crisis has slowed down the US economy, affecting mostly the consumption and investment spending in the country because of the increase in unemployment as more businesses have shut down (Blackenburg & Palma 2009). The demand in the US for products of fast-moving consumer goods companies like Kraft has decreased significantly especially for products that are more price-sensitive (Blackenburg & Palma 2009). Due to this local situation, the company is determined to seek growth in areas that are less affected by the economic crisis. Higher growth in developing countries. The recession in the US has lead Kraft to employ a different strategy in order to ensure growth and deliver value to its shareholders. This lead the company to assess its current options for growth. By looking at its group sales, it is apparent that sales in developing countries comprise a huge chunk – 20% of its US$40 billion sales. These developing countries also included higher prospects for growth and penetration. While growth in the home country is slowing down, growth in these countries have been double-digit. Developing countries, because their financial systems are less integrated to the global financial system, are less affected by the current economic crisis. Indias market size and spending power. One of these developing countries that is considered very promising in terms of market size and spending power is India. Krafts focus to grow overseas is very much apparent in one of its recent activity – the acquisition of Cadbury. The major benefit of the acquisition of Cadbury to Kraft is the latters stronghold in one of the food segments in India – the confectionery market. In order for Kraft to grow, its chosen mode of expanding its operations in the Indian continent is by using the strength of the Cadbury brand as a leverage. III. With reference to the broader Asian market, explain how Kraft can overcome the challenges it faces in expanding turnover across the complete range of its products. Local marketing research. In order for Kraft to overcome the challenges it faces, the company has to know the local market very well; local marketing research is crucial to the company (Craig & Douglas 2006). The first thing that Kraft has to acknowledge the differences in culture and customs with those of what the company has grown used to in its home country (Craig & Douglas 2006). Knowing the local market is crucial in order to understand what influences their decision to purchase Krafts products. Only by knowing the market will the company be able to craft certain strategies in order to succeed and expand the turnover across the complete range of its products. Localised marketing strategy. In order for the company to succeed in the Indian continent, it has to change its strategy and marketing practices. The Indian market, or the Asian market in general is totally different from the US market as well as the certain European regions where Kraft currently operates. This boils down the companys international strategy. Referring back to the case, it is apparent that the companys positioning strategy in India is at a premium. Although Krafts brand is well-known, its products are referred to as higher order products. The companys positioning of Tang as apparent in its premium pricing also shows this. In a market where price sensitivity is high due to a big number of alternatives, the company has to change its positioning in order to gain a better foothold in these markets. If the company aims to benefit from the large population of the country and the peoples spending power as a nation, the company has to define its target better – in order to sell high in terms of volume it can cater more to the masses than to people who are likely to buy products that are positioned at a premium. The incentive for multinational companies to go global and to expand in overseas market is to enjoy that economies of scale bring, may it be in the form of either production or marketing (Pickton & Broderick 2001). However, for companies like Kraft, the option is not so hard and fast of whether to standardise or localise, in order to reap the rewards of economies of scale. Success in new markets depend on many factors, and when the macro environment is considered, cultural factors are an important consideration (Cho & Padmanabhan 2005). The level of acceptance of the product within the marketplace is still dependent on tastes and preferences that are governed by different societal and cultural factors (Cho & Padmanabhan 2005). A multinational company like Kraft must learn to be flexible, and to adapt to the local environment in order to compete well in local markets. In the case of the Asian markets, who are less receptive to Western influences such as India, it is important to consider a local marketing strategy. This does not only entail custom-tailoring the companys strategy in a given market, such as its positioning, this also requires the company to modify its marketing mix in order to suit to local tastes and preferences. Product. The challenge for Kraft when constructing its product portfolio, when deciding on which products to markets is a question of weighing costs and benefits. The company needs to enjoy the benefits of economies of scale, which comes from introducing some of the existing products that it currently sells in different markets (Pickton & Broderick 2001). However, in order for these products to compete at the local level, they have to be modified in such a way that they will suit the local taste (Duncan 2005) While the company can standardize, it is important that it localizes its offer. The labels have to be translated to Hindi in such a way that the essence of its brands can be retained, and will get the intended impact to Indian consumers. This is most important when marketing product in Asian countries. Although the Asian market in general is very diverse, the vast difference of its culture from that of the West requires that companies like Kraft become more sensitive when creating product offerings. As mentioned in the case, the success of other multinational companies such as Pepsi lies in its ability to be sensitive of the local culture, and modifying its products in order to suit the local taste. By making the products more accessible to ordinary consumers, they become more relevant (Duncan 2005) The likelihood of purchase becomes high, unlike when the product is being perceived as too foreign, both in idea and physical attributes. Price. Pricing considerations are also vital to the companys marketing mix decisions. The price will entail a certain perception, therefore it is important that the companys positioning in terms of price is consistent with its target market: the proposed is to put it in mid-range in order to create a perception of being affordable to the target market without creating a cheap perception of the brand if it is otherwise positioned in the lower range (Duncan 2005). Although standardised pricing enables the company to have a better comparison of its operations across different markets, in Asian markets in particular where the market dynamics are very much different the companys pricing strategy needs to also be strategically tailored (Duncan 2005). Referring back to the case, when it comes to food and confectionery in India, the market is a bit price-sensitive. Standardised pricing will only create a different impression on the product; in the case of Kraft, its brands are seen as higher order because of its premium pricing. This makes the companys products being perceived as too expensive; after all, various alternatives come in low prices. Strategic considerations have to be made here, which includes adjusting prices in order to make products more attractive to consumers for purchase, with the idea of higher value, at the same time a balance with production and cost-effectiveness – if it is not economically feasible for a product to be marketed because of the small potential in returns, then the product must not be marketed, or must be marketed in a different way that it produces profits and contributes value to the companys operations (Pickton & Broderick 2001). Place. As discussed previously, Asian markets are different from Western markets because of the vast differences when it comes to cultures. Among these differences include some of the distribution systems in different areas. In India for example, kirana stores are a major distribution channel where 98% of foods are purchased. It is therefore less effective for Kraft to stock the shelves of supermarkets and hypermarkets when its goal is to penetrate the Indian market. It has to create innovation when it comes to distribution, in order for its products to reach its consumers in the most effective way. If the channel that is most commonly used by manufacturers to reach consumers is the kirana stores, Kraft has to create an efficient supply-chain system which will cater to these stores in order to ensure that its products will reach the final consumers. Promotions. In order for Kraft to promote its products, it cannot adopt its promotions strategy in its home country US or its strategy in areas like the European region. In Asian markets where most of its products will need proper introduction due to their Western attributes, the idea is to not promote the brand but to introduce and educate the market about the product first. This is very important, since the decision to purchase the product is not based on the brand versus another brand, but based on the benefits that the new product brings over another more traditional product. The message strategy of its communications strategy should also be well-tailored to the Asian market. This includes the use of local language, as well as the use of local slang and metaphors, and humour which is inherent in the countrys language (Pickton & Broderick 2001). The message has to be very relevant and accessible to the target consumers, not only understandable or comprehensible (Duncan 2005). When constructing messages in order to position the companys products, it is also important to compare it not only against a distant competitor, but also to its indirect competitors. Some of these indirect competitors include local and more traditional substitutes. These comparisons have to be made by emphasising the benefits to consuming Krafts products, not just a linear one. References Blackenburg, Stephanie & Jose Gabriel Palma. (2009). "Introduction: The Global Financial Crisis." Cambridge Journal of Economics 33 531-538. Oxford Journals. Retrieved April 29 2010 from . Cho, Kang Rae & Prasad Padmanabhan  (2005 June). Revisiting the Role of Cultural Distance in MNCs Foreign Ownership Mode Choice: The Moderating Effect of Experience Attributes. International Business Review, 14(3), 307-324.  Retrieved April 29, 2010, from Science Direct. ( doi:10.1016/j.ibusrev.2005.01.001    ). Craig, Samuel C., & Susan P. Douglas. (2006). Beyond national culture: implications of cultural dynamics for consumer research. International Marketing Review, 23(3), 322-342.  Retrieved April 29, 2010, from ABI/INFORM Global. (Document ID: 1073440291). Duncan, T. (2005) Principles of Advertising and IMC. New York: McGraw-Hill, Inc. Pickton D., & Broderick A. (2001). Integrated marketing communications. 2nd ed. United Kingdom: Pearson Education Limited. Read More