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Kraft Foods' Competitive Strategy
Kraft Foods is a one of North America's largest packaged food companies. To reach its current competitive position the organization is changed to great deal of the last decade, with increased focus on the core products, and the sale or spin-off of the non-core divisions, for example the sale of the frozen pizza division 2010 to Nestle, and in 2012 the demerger of Mondel-z International (Kraft Foods, 2014). This has left the company with a high level of focus in selected product categories and North American markets. The shift in the company's focus has impacted on the way in which they compete, but despite this change narrowing of focus, the organization still be seen as one which serves the mass market, with some type of Kraft Food product 90% of all households in the United States, 99% of all households in Canada (Kraft Foods, 2014).
Examining the Kraft Food strategy will give an insight into the way the organization currently operates, and help to provide a basis on which to examine the development of future strategy. Michael Porter has argued that for a company to be successful they need to have some type of competitive advantage. There are four types of competitive advantage, these are the cost advantage, differentiation, a niche market or focus strategy, and a pre-emptive strategy. To determine the strategy that Kraft Foods are currently following, because of the strategic actions with the different models may be briefly considered. An examination with an organization has a large number products must also consider the idea that the different brands all business units within the organization may choose to use different competitive advantages. Porter in his original model argued that an organization should have more than one source of strategy, as an individual source may be emulated by competition, but he also stated that an organization was only likely to succeed if they pursued a single source of competitive advantage, as pursuing more than one may lead to consumer confusion and undermine the competitive position of the company (Thompson, 2007). Asker was more optimistic, and believed that with careful management a company could pursue more than a single competitive strategy (Thompson, 2007).
The differentiation strategy is one of the most common competitive advantages. Differentiation is seen where an organization is able to gain an advantage due to the characteristics, associations, or other features linked with the product which are different from the competition, and valued by the purchasers (Mintzberg et al., 2011). Differentiation is also been argued as supporting the first mover advantage, as frequently new products which gain a first mover advantage will be differentiated. In more modern theoretical texts this has become separated, worthy of a separate category. Kraft Foods operate in a highly competitive environment, with many organizations competing selling the same or similar products could easily act as if a replacement products or substitutes. The challenge for the organization is compounded by the low switching costs for the purchasers (Kotler & Keller, 2011). In order to compete in this environment Kraft Foods have developed some very well established brands, and differentiates itself through the brand image. For example, Philadelphia Cheese Spread is differentiated from a strong brand, and in association with quality. Cheese Whiz competes with many similar products on the market, but the brand reputation, and its early first mover advantage gained many years ago, but not eroded, places in a strong position where differentiation through brand image. Other products, such as A1 Steak Sauce, have a unique flavor and differentiation is clearly through the product characteristics. Maybe argued the different products differentiation is also supported through the clear branding which incorporates the Kraft logo, clearly placing the brand in the Kraft family of products. Therefore, it maybe argued that one of the core strategies of the organization is differentiation. This is also supported with the significant level of investment in research and development, where not only new products developed, but ways of found in order to improve existing products and undertake brand extensions.
Cost advantage is seen when an organization is able to gain superior profits (Mintzberg et al., 2011). The process is often associated with the ability to gain economies of scope and scale, but can also be associated with access to low-cost capital, efficient operating procedures etc. While Kraft appears to have a call competitive advantage of differentiation, when examining the firm there is also an indication that within the cheese sector the organization has managed to gain a cost advantage. Within the cheese sector Kraft Foods have gained a 40.08% share of the market (CSI Market, 2014). The main competing firms are Campbell, Mondel-z, and JM Schumacher, all of which have lower operating profit margin compared to Kraft Foods (CSI Market, 2014). It is quite possible that within the cheese market, the dominant position of the organization has facilitated the ability to gain economies of scope and scale. However, it is still likely that the main thrust of the competitive strategy within the marketplace is that of differentiation, in order to continue selling products to meet consumer needs. However, with such a large share of the market this also provides the company was a market power, which may be utilized to their advantage in terms of gaining in utilizing retail shelf space (Kotler & Keller, 2011).
The niche/focus market is not appeal to the mass market, so this is not one of the core strategies of Kraft Foods, who are clearly appealing to the mass market. The pre-emptive strategy, which incorporates a first mover strategy, may also be seen as part of the approach of Craft Food, with the high investment in research and development, and the potential of the organization has for the creation of new products, new product categories.
Assessment of Strategy
The organizational strategy, which appears to be focused on differentiation, but also includes the benefit of some cost advantage is within cheese, appears to be aligned with the organizations stated mission, which reads "Our aim is to be North America's best food and beverage company, and we'll get there by continuing to offer products consumers love, creating a performance-based culture that motivates and excites employees and becoming the best investment in the industry" (Kraft Foods, 2014).
To provide products that consumers love there is a need to understand what consumers want, and then provide those products. This is highly aligned with differentiation, and that the company unable to get its products into 98% of United States households appears to indicate that consumers do like products. The desire for increased efficiency is seen within the performance related culture reference, and it appears Kraft Foods believe and differentiation does not necessarily negate operating efficiency which may lead to cost advantages, so that approach may be aligned with the theory of Asker, who stated careful management could facilitate the use of more than one competitive strategy (Thompson, 2007). If the organization is going to become the best performing investment in the industry, this also indicates that a greater level of attention may need to be focused on operating and management efficiencies in order to gain cost advantages across the organization, rather than just within the cheese sector.
The differentiation strategy does build on the existing strengths of the company, including the high level of control over the supply chain ability to control manufacturing processes, and use of research and development to adapt when necessary, for example except adapting the macaroni cheese recipe to meet changing market needs.
However, in a highly competitive market, the differentiation strategy is always under threat, as any successful form of differentiation is likely to be observed, and then copied, or bettered by the competition. Even with innovation of new products, the gain first mover advantage, it has been estimated as lasting no more than 18 months due to other companies reverse engineering, copying and bringing to market similar products (Thompson, 2007). Kraft Foods focuses on differentiation, but this does remain weak in a number of areas due to high level of competition in the market. The ongoing use of research and development to support and improve products supports the differentiation strategy.
The newly formed company following the demerger in 2012 has made it clear the focus of the market is the North American market, and therefore opportunity such as international expansion are unlikely to be seen as viable. However, other opportunities exist in terms of further differentiation, and a greater level of pursuance of a pre-emptive strategy. The research and development facilities are a significant strength within the organization, and provide an opportunity through which the weaknesses associated with the ease of emulation of differentiation may be tackled.
The company benefit significantly from the research and development facilities. With products that are already very successful, and a desire to sell products at customers love, as well as becoming the best investment in the industry, the recommendations for the future are built on…[continue]
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