would like you to think about the process described in the case - asking four executives to each develop a plan and then having Marcus and the consultant decide what to do. For example, strategies like white meat. What are the good points and bad points of this approach? What traps might it fall into? How might it really work?
How do you think the process described led to the outcomes proposed? And is that a good thing or a bad thing?
Oscar Mayer: Strategic Marketing Planning Harvard Business School 9-597-051 Rev. March 20, 1998 Dan Kotchen, MBA '96 and Robert Drane, Lecturer at the University of Wisconsin-Madison, in collaboration with Professor John A. Quelch prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1997 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685 or write Harvard Business School Publishing, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 1 Oscar Mayer: Strategic Marketing Planning Marcus McGraw leaned back in his leather chair and gazed out his office window at the ice skaters on Lake Mendota. He loosened his tie, slipped off his loafers, and sighed deeply. It had been a long week, and he was still struggling with what direction to take in his upcoming Strategic Plan presentation to his boss at Kraft Foods. In McGraw’s 22-year career with Oscar Mayer Foods— including the last four as president of the Division—he had never encountered such a complex business challenge. First there was the alarming market research report prepared by McTiernan Corp., a consulting firm the division had relied on for planning advice over many years. Then, in the middle of his desk, lay a series of memos from four of his most trusted managers, all responding to the McTiernan report with their ideas on what action was “clearly best for the company.” The problem was that at first glance no two recommendations seemed even remotely alike in regard to what was “so clearly best.” “Oh well,” McGraw thought out loud, “this is why they pay me the big bucks.” And with that he hauled out the note from Mike McTiernan that had started the controversy. October 14 Dear Marcus, It was good talking with you last week, and I hope you enjoyed the Green Bay thrashing of the Cowboys. What a great game! In regard to the enclosed Oscar Mayer Annual Report, please note our belief that the marketplace for processed meats is undergoing some fundamental changes that will threaten your profit growth over the next 3-5 years. The most critical threat we see is that the Division’s current product portfolio is slowly shifting out of alignment with consumer trends. Specifically, your traditional red meat products like bologna, hot dogs and bacon, all branded Oscar Mayer, are under attack for being too high in fat content. You can see the results in your softening sales trends. In the short-run you’ve been able to offset these losses through your recent acquisition of Louis Rich, Inc., and their turkey-based line of products that are both lower in fat and also lower priced. Your ability to use your business and distribution system strengths to make Louis Rich the leader of the white meat segment has really paid off—and This document is authorized for use only by Humaddin Ahmed (humaddinahmed@gmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. 597-051 Oscar Mayer: Strategic Marketing Planning 2 has kept the “total Division scorecard” looking favorable. But the investment costs to build this “second brand” have been high, and we fear that some of the steam may be running out on Louis Rich, as evidenced by the slowing growth rate, and the entry of competitive copy-cat brands of turkey and chicken lunch meat and hot dogs. If Oscar Mayer branded red meat products remain sluggish and the Louis Rich white meat lines begin to slow, your goal of +3-4% annual lb. volume growth could be in jeopardy. Finally, I have to again mention the other consumer trend that may threaten both your current Oscar Mayer and Louis Rich products. This involves the increasingly fast- forward pace of our lives, especially for moms in the workforce. They represent a large part of your target audience and they are constantly looking for new products that are faster and easier to use. I know that your latest attempt, Oscar Mayer Stuff ‘n Burgers, wasn’t the answer, but I recommend that you keep searching for any and all ways to “boost convenience.” By now I’m sure you’re muttering “There goes McTiernan again with the sky is falling routine.” But I guess that’s a part of my job as an outside observer. To shout before the sky actually falls. Which brings me to what you might consider doing about all of this. Here’s a possible direction: “The Division should continue to focus on broadening and contemporizing its product lines against emerging health and convenience trends, while carefully allocating its investment monies (e.g. advertising and promotion budgets) to deliver both short-run and longer-run profits.” As I see it from a distance, your present laundry list of possible “investment bets” includes the following: 1. Adding new benefits to the current OM/LR products. 2. Strengthening/diversifying your lines via another acquisition. 3. Internally developing new products that tap the new needs. But, as always, the devil is in the details . . . and the details will need to come from your Business Managers and their teams. Knowing them as I do, I’m sure you’ll be getting plenty of advice! Let me know if I can help. Best regards, Mike McGraw nodded at the closing lines and replaced the report in his desk. Mike McTiernan was right again. The Division was probably in decent shape for another year, but then what? One thing was for sure: McGraw had no intention of surrendering Oscar Mayer’s track record as the fastest growing profit-maker across all of the Kraft divisions. In fact, prior to the McTiernan Report, he was planning to make two very bold promises about annual growth over the next three years: +4% per year on volume and +15% on operating income. “I’m going to stick with that call unless all of the This document is authorized for use only by Humaddin Ahmed (humaddinahmed@gmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. Oscar Mayer: Strategic Marketing Planning 597-051 3 ‘details’ really prove that it can’t be done,” McGraw thought to himself, as he pulled the complete McTiernan Report (see Exhibit 1) out of his file, and began to read. Upon finishing Mattson’s report, McGraw got out of his chair and walked across the room to the bulls-eye putter resting against the far wall. As he stroked the first golf ball toward the imaginary cup in his mind, he thought about all of the times he had been here before. “When was the last year that the sky wasn’t falling?” he wondered. “Of course it’s getting harder and of course some of the wheels are coming off. And of course we’ll find a way to get it right. Bring on the Cowboys.” With the first of the four internal memos in hand, he began a serious read as he paced the room. To: Marcus McGraw From: Rob Goodman–Louis Rich Category Mgr. Subject: McTiernan Report I read the report and agree that we need to reconsider our investment strategy— with an emphasis on backing the winner in our stable, Louis Rich. Better-for-you white meat products are on-trend, and we were smart enough to see it before the others. The recent slow-down in the rate of growth simply says that competitors are catching on. Which means that we need to pump more money in to stay in the lead. I really believe that white meat lines can capture 50% of the market over time, and my folks have put together an aggressive plan centered on two initiatives: 1. Boosting our brand awareness and trial by heavying up our advertising behind the new “Switch to Rich” campaign. We’re still in the early growth stage of the life cycle with LR and this copy really demonstrates the advantages of white meat over red. It’s tested well and should add share, if we run enough weight behind it to really break through the clutter. 2. Introducing the string of new products that R&D has developed, including LR Turkey Bacon and the great Roast Turkey and Gravy dinner line you saw last week. To get this done, I figure we’ll need to up our Advertising & Promotion budget by about $22 million. In the short-run, this will reduce our profits slightly, but provide another big jump in volume and set us up for long-term growth. Given the clear upside potential for white meat lines, this “L-T growth over next year profits” strategy seems right. Estimated Profit & Loss: Louis Rich Current Year Next Year Pound volumea 272 305 % change versus last year 10.9% 12.0% Advertising and promotion $133 $155 Operating income $29 $27 aFigures in millions. Let’s discuss further when you’re ready. This document is authorized for use only by Humaddin Ahmed (humaddinahmed@gmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. 597-051 Oscar Mayer: Strategic Marketing Planning 4 “That’s exactly what I would argue if I were in Rob’s shoes,” thought McGraw. “He’s riding a fast horse and knows that those don’t come around all that often. But I wonder what his new advertising will do to our Oscar Mayer lines. And what’s a bacon made from turkey going to taste like? Let’s see what Jane has to say.” To: Marcus McGraw From: Jane Morely–Director of Finance & Planning Subject: McTiernan–Acquisitions This report prompted me to dig into the possibility of going after some small companies that offer both healthier and more convenient products. Three caught my attention: 1. Chicken Rite Inc. Located in Savannah, with sales of roughly $15 MM across 4-5 states, their star is a line of low cal chicken salad in single serve tubs. 2. Turkey Time Ltd. They’re on the West coast , doing $10-20MM, with a line that’s similar to Louis Rich, except for some ready-made frozen sandwiches. They also have a new plant with excess capacity. 3. Crabbies, Inc. Their HQ is in Maine and they make a string of simulated shellfish products (e.g. crabs, lobster) out of low cost raw materials such as halibut. Sales estimated at $15MM. Turkey Time is closest to our know-how, and the plant might support further LR expansion. The other two might let us tip-toe into some new protein sources and convenience products at relatively low risk. A complete guess at price tags might be $15-25MM apiece. If we borrowed this at 12%, annual debt service would run about $3MM. The impact on operating income would obviously depend on how they’d perform. Let me know if you want a deeper search. And on the rest of McTiernan, we’ll need to acknowledge our weak Oscar Mayer trends and new products history when we do the presentation. The good news is that we’ve been delivering the numbers, which is ultimately the bottom line, isn’t it? McGraw pondered the thought of another acquisition on the heels of the Louis Rich deal. As always, Jane ‘s instincts were to never sit still in the presence of good results. In fact she always argued that good results gave you the “right” to take risk, and reach out for new investments. The key question, of course, was how to balance all of this stuff. McGraw looked at the remaining two memos on his desk, and grabbed the one from Jim Longstreet, who was the newest member of his direct management team, brought in to improve the new product hit rate. To: Marcus McGraw From: Jim Longstreet Subject: My Thoughts on the McTiernan Report I felt that McTiernan got it exactly right when he said that the Division’s long-term health lies in “broadening and contemporizing our product lines against emerging consumer needs.” Yes, we have to stay profitable in the interim, but 85% of our This document is authorized for use only by Humaddin Ahmed (humaddinahmed@gmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. Oscar Mayer: Strategic Marketing Planning 597-051 5 current volume lies in lines we’ve sold for almost 100 years! And the data shows that lunch meat, hot dogs and bacon are all very mature categories with no built-in growth. To get the 4% annual volume gain we want, I believe we need to invent a 4th major category within processed meats that can address changing consumer lifestyles and give us a “growth engine” that will carry us for a decade. And now is the time to do this, while results are strong and we are able to both make our short-run goals and invest in the future. I have two ideas to offer here which have come out of work by our new cross- functional “Invention Teams.” The first cleared our concept test hurdle and is entering the “value engineering and economic evaluation stage.” The other is just taking shape as an early concept. 1. “Zappetites.” This is a line of miniaturized family favorites (pizza slice, burger on a bun, tacos, etc.) that go from