Case Study #22: Kraft Foods, Inc. Puts in a Multi-Billion Dollar Bid to Get a Slice of the Confectionary Market

The second largest packaged foods company, Kraft Foods, Inc., announces a bid of $16.7 billion for Cadbury, PLC. This bid is rejected by Cadbury as the company says it is undervalued, but that doesn’t deter Kraft from going back to the drawing board to try again. Should this deal work, it will represent the largest acquisition for Kraft since its purchase of Nabisco for $19.2 billion in 2000 (Hughlett, Michael. “Kraft's $16.7 billion bid for Cadbury rejected”. Chicago Tribune, September 7, 2009).

Over the next few weeks, if not months, there will undoubtedly be more information about this deal. This strategy represents Kraft’s desire to acquire complementary assets, but it is based on the growing global market demand for sweets. Currently, Kraft has three chocolate product brands (Toblerone, Milka and Cote d’Or) and has a 4.5% share in the U.S. confectionary market (Hughlett). By acquiring Cadbury, Kraft will absorb more established chocolate and gum brands, and access to global markets that Cadbury aggressively competes in today. This strategy is market-and-business facing.


The continued growth of private label consumer goods is affecting the performance of consumer goods brands as customers become more controlled with their expenses. There are other reasons why retailers want to be more vertically integrated that are peripheral to customer frugality: “Trader Joe’s private label offering contributes powerfully to its brand proposition; approximately 85 or 90% of store offering is private label, there are about 2,000 SKUs in the portfolio, and sales per square foot are more than twice that of supermarkets and three times that of other specialty stores.” (Mullick-Kanwar, Meera. “The Evolution of Private Label Branding”. Brand Channel). For several consumer goods sold in a retail space, there are private label counterparts that are significantly lower in retail price. Assuming customer frugality is embedded into shopper mentality for an indefinite period of time, consumer goods companies have to re-examine the sales and profitability of the entire product portfolio. Consumer goods companies can reduce retail price only so much before these actions erode profitability, so they have to consider growing their strength in high-involvement goods, such as chocolate and gum, that aren’t in the core operational competencies of a retailer. According to the “Innovations in Confectionary” report published in June 2009 by Business Insights, key issues facing the global confectionary market are:

• Emerging markets: Growth in the confectionary market will largely take place in emerging markets. Turkey will be the highest growth market, followed by Croatia and Russia which are forecast to grow by 25% to 2012.

• Natural: Consumer demand for products that are free from artificial colors, flavors and additives and concern over the long term effects of artificial ingredients has driven growth in the confectionary industry.

• Heritage and provenance: For chocolate manufacturers a key growth opportunity is for premiumization through either high quality country of origin (or even single estate) ingredients or by focusing on the quality of production methods.

• Healthy and functional confectionery: Health continues to be a key innovation opportunity for confectionery managers in line with an ageing population and an obesity epidemic.

Even if retailers develop the operational capabilities to manufacture and sell chocolate and gum based on these issues, they may not be perceived to have the brand credibility that are owned by more established confectionary manufacturers.

A potential acquisition of this magnitude during a sluggish economic recovery implies Kraft’s commitment to grow its extend its brand in growing global markets while evaluating other products in its brand architecture.

My hope is that the companies collaborate on manufacturing and selling a frozen Cadbury chocolate PHILADELPHIA cheesecake. As I devour this fine creation, I can wash it down with a glass of private label milk.

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Case Study #21: L’Oreal Banks On Affordable Invention Strategies to Boost Global Sales and Profitability

If you want to take a temperature check on the economy, be very observant when you visit any retail channel that sells consumer products. Most retailers have very rich data about customers and what they buy. And this data is distilled for in-store and online strategies to drive sales wherever possible. Great deals on shelf space within your immediate view or promotion islands at major areas of store traffic are no accidents.

On August 28, 2009, the Wall Street Journal interviews Jean-Paul Agon, Chief Executive Officer of L’Oreal. He discusses how economic AND market conditions are forcing him to make some tough decisions at his company, such as organizational restructuring and hiring freezes. However, Agon also talks about growth through “affordable invention”.

In the interview, Agon says: “The last thing to do would be to give up innovation because cosmetics is really about permanently inventing new products, new technologies, new benefits, new results. For a while we've been very obsessed with premium-ization, more performance and higher prices. The strategy resulted in a narrowing of the target.”


An example of this strategy is a special line called Basics from Garnier that will be sold for 5 euros, 50% cheaper than the lowest end Garnier product in the market today (10 euros). Agon also talks about expanding in countries such as China, India and Brazil. L’Oreal has subsidiaries in Egypt, Pakistan and Kazakhstan. The L'Oreal Brandstorm is reflective of L'Oreal's desire to grow its global presence:



Inventions or innovations are mostly perceived as expensive distractions from core business operations. Businesses facing the adversity of suboptimal economic conditions and increasing customer attrition cannot afford to shrink further. Like L’Oreal, they must re-purpose invention and innovation strategies to execute growth of new products in markets on the periphery of their core business. Cannibalization will be minimal if the target markets and product offerings are very distinct from one another. It is my belief that rich customer generated from L’Oreal distributors and a collaborative approach to strategic change helps the brand begin its anti-crisis strategy between the summer and fall of 2008. There is a significant lead time required by product development to execute a new product via all gates of the process. Overall, this is a very data-and-insight driven strategy that will help L’Oreal recognize an incremental stream of revenue to offset losses in its flagship categories.

The expansion of the target market makes the L’Oreal brand vulnerable to dilution. Generally, this is the double-edged sword for luxury brands trying to keep head their heads above water in tough economic times. I do not agree with Agon’s marketing strategy of only advertising high-end products because they are not as accessible as his new flanker line of products. That may maintain L’Oreal’s brand image, but have very little impact on sales. L’Oreal will have to deploy thoughtful retention tactics for their core customers by providing free advice on beauty, skincare, style and health via offline and online channels that capture data about the core customers. Packaging on certain products can be re-designed to be less ostentatious without diluting the L’Oreal brand image. The lower costs of packaging may enable the company to maintain or reduce retail pricing. Loyal customers can be rewarded with free gifts and certain distributors may be encouraged to work with the L’Oreal product development team on new ideas.

Economic recessions don’t last forever, so it is important for brands to maintain their relevance and allure to the people who love them while finding ways to succeed in new markets. This will help achieve both short-and-long term business goals.

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Case Study #20: The Walt Disney Company Makes A Hero-Sized Investment in a Brand Built by Superheroes

On August 31st, 2009, The Walt Disney Company announces that it will acquire Marvel Entertainment, Inc. in a stock and cash transaction. Under the terms of the agreement and based on the closing price of Disney on August 28, 2009, Marvel shareholders will receive a total of $30 per share in cash plus approximately 0.745 Disney shares for each Marvel share they own. Based on the closing price of Disney stock on Friday, August 28, the transaction value is $50 per Marvel share or approximately $4 billion. Under the deal, Disney will acquire ownership of Marvel including its more than 5,000 Marvel characters.

Disney has four business segments: media networks, parks and resorts, studio entertainment and consumer products. Several brands exist within each of these business segments. Marvel Entertainment, Inc. can be successfully and creatively integrated into all four business segments. However, the cost of acquisition is expensive given the latest 2009 3Q financial performance metrics:

• Revenue for 2009 3Q is $8,596 billion (7% less than 2008 3Q). Segment operating income for 2009 3Q is $1,849 billion (20% less than 2008 3Q).
• Every business segment shows a decline in revenue and operating income from 2008 3Q. The decline is lowest for media networks and parks and resorts. And it is the highest for consumer products, interactive media and studio entertainment.
• As of June 27, 2009, Disney has a free cash flow of $2,199 billion (nine months ending), significant lower than its free cash flow during the same time in 2008 ($3,252 billion).

An investment of this magnitude must show a significant return in the near-to-long term for Disney to improve its profit and cash positions. According to the “Disney to Buy Marvel for $4 Billion” article in Businessweek, Disney acquires Marvel to “sell to teen boys, which has remained a lingering weakness for the company that sells tons of Hannah Montana clothes to preteen girls and Mickey and Minnie toys to younger children”. I strongly believe that Disney’s brand is powerful enough to generate positive associations from the teenage male segment, but there are opportunities to be more “stratelytical” with this approach.



The teenage male is more complex than the portrayal of Stifler in the first American Pie movie. There are various social, political, economic, technological and environmental factors that affect how teenage males interact with brands today versus ten or fifteen years ago.


This becomes more challenging for Disney as it has to make Marvel, a relatively established brand, relevant and appealing for today's teenage males.

Marvel starts toward the tail-end of the Great Depression and grows rapidly during the remainder of the 1930s and 1940s. The industry suffers a setback in the 1950s, but grows stronger in the 1960s as a new crop of popular characters appeal to the children of the baby boom. After another slump in the 1970s, Marvel rebounds in the 1980s, growing even larger and more popular. The company begins to diversify in the 1990s, as it seeks to reap full value from its stable of superheroes through licensing arrangements and other media outlets. Marvel counts among its characters such well-known properties as Spider-Man, the Fantastic Four, the Incredible Hulk, Thor, Iron Man, Captain America, the X-Men (notably Wolverine), and others. Most of Marvel's fictional characters operate in one single reality known as the Marvel Universe (Source of history: www.fundinguniverse.com)



Marvel achieves success during a time of economic recovery and post war boom. This makes sense as young adults growing up in that period seek inspiration and empowerment through creative, fictional representations of hope. Fast forward over sixty years later and Disney buys Marvel during the anemic recovery of the worst recession since the Great Depression. This is rather ironic. Before the integration team really huddles up to re-size and re-forecast the teenage male target market, it is imperative to start with secondary and primary qualitative research that addresses the following issues:

• Social, political, economic, technological and environmental concerns
• Current and future aspirations
• Core values and principles
• Importance of network (family, friends, peers, teachers, coaches)
• Engagement in after school activities
• Engagement in weekend activities
• Absorption of messages from multi-channel touchpoints
• Interactions with brands

This will provide the foundation of a target customer segmentation model. A significant sample presenting each of the segments can be tested via quantitative methods to understand brand relevance and purchase funnel factors. A conjoint study supplemented with a “superhero build” activity at a lab can be deployed later to help support animation, design and product experts who update existing Marvel characters. This activity may help create other Marvel characters that can be owned by Disney and licensed to other media outlets for an incremental stream of revenue.

There is an extensive amount of diligence that is done before a business arrangement is announced by a company, but a $4 billion dollar investment will pay off when the operational units are aligned to execute customer-facing tactics that not only build the acquired brand, but make it relevant and appealing to its stakeholders. This first requires resource allocation in market research and customer segmentation activities to refine volume and revenue forecasts.

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