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Marketing Course, UPF Oscar Mayor 10.11.2010

Master in ManagementMarketing

Instructor: Antonio Ladrón de Guevara

Sudantes:Mohamad Pazhohnia

Mehdi GhotbiSara Karamidavar

Arian ArimanGemma Seda

Amani ariuahn

1.- What are the market trends?: Growing segments, new opportunities, changes in consumer habits,... To facilitate the analysis, please, calculate the annual growth rates for the processed meat category during the last two years. What can you say about the stage of the category? Calculate the annual growth rates for the two segments: white-meat and red-meat. Can you see any trend?

Processed Meat Industry Pound Salesa

Current Prior year Two years agoAll lunch meat 1427 1393 1363% growth 2.44 2.2 -Red 1103 1108 1112% growth (0.45) (0.35) -White 324 285 251% growth 13.7 13.5 -

All hot dogs 859 851 843% growth 0.94 0.94 -Red 661 685 699% growth (3.5) (2) -White 198 166 144% growth 19.3 15.3 -

All Bacon (Red) 677 698 709% growth (3) (1.55) -

Over the past five years total processed meat consumption has been increased, but the Red meat category has been decreased with relatively increasing in slope, while the White has been increased with relatively increasing in slope.The market is also going to more convenience and healthy foods. LR is offering the healthy food but it lacks relative convenience to their customers.Two trends in the market:

1- People pay more attention to their nutrition and food and healthiness.2- There are mothers in the workforce are becoming the important target since

they have no time to make food at home and of course they should prepare food for their children.

3- Customers prefer more white over red meats.In a nutshell, the market trend is going to consume more white than red and healthier low fat instead of high fat and salty food and more convenient foods.


2.- In what category would you classify the Oscar Mayer and the Louis Rich Brands (Cows, Dogs, Questions marks or Stars)?

Oscar Mayor: Cash Cow: Relative high market share and relative low market growth.Louis Rich: Question Marks: Relative Low market share and relative high market growth.

3.- What are the division objectives? Can the division reach both the volume and income objectives simultaneously?

McGraw follows the strategic process in which he wants to increase the profits by 15% and +4% annual growth rates.According to the following table, we can obviously see it might be possible to reach the 4% annual growth in Volume but it is almost impossible to gain the 15% growth in income while the total estimated is – 5.2% in next year because of that they are investing to their new products. In deed these two objectives are like tradeoffs, while you are reaching one you are losing the other but since their products are in different segments in BCG matrix, they have the chance to make a portfolio to invest rationally and optimally to gain high profit and the good volume but not exactly what they want, and it might be possible to reach nearly both objectives simultaneously in this case in long run not for the short run.

There are many tradeoffs:Volume vs. IncomeLong term vs. short termCategory objectives vs. division objectivesDivision objectives vs. the whole firm

4.- Can Oscar Mayer reach the volume growth objectives with the existing products? Why? Why not?

We think it would not reach this objective by this product. If we look to the numbers for volume growth in Oscar Mayor we see that they are losing their sells. It has changed from 3.1 to 2.6 percent in past two years ago, therefore with this existing product it seems it is impossible because the OM product is not aligned by the market trend as well, I mean the trend is toward the red not white, the price is a little high according to customer satisfaction survey and it is not healthy enough and convenient. And of course it depends to the other competitors and their market share. While competitors are doing good to produce more healthy and convenient food in lower price they are gaining the market share more than OM.


Case Questions: Oscar Mayer

1- In the beginning of the case McGraw thinks he has "never encountered such acomplex business challenge" as the one he currently faces. By the end of the case,after he has read the ideas listed in the four memos, McGraw can’t believe heever thought the investment issue was "going to be a hard one." What changedthe president’s perspective? What strategic decision-making process doesMcGraw pursue?

McGraw view of the situation has changed due to the great ideas of his associates and of course he was sure that they carried out all these ideas into action. At the beginning, after reading the letter by Mike McTiernan had no option, no solution. But after reading a letter from four of its managers was stunned crowd of ideas on the table, proposed solutions and of course makes it much easier to solve a problem than it initially seemed. He realized that there are great people, capable and eager for success. In particular He has an encouraging letter from his friend who had recalled the difficult moments that have successfully overcome. In a nutshell, as McTiernan told McGraw ” 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!” After reading their notes, McGraw understands that this is an excellent team of managers who can be trusted, and he was greatly helped in solving problems.

2- If McGraw chooses a strategic direction that favours only one department, whatnegative effects could this have on other departments? How can McGrawmitigate the damage?

Selection of the strategic direction that supports only a single department would mean termination of all other departments, which implies that the decision of the company is losing the diversity of products that can achieve a profit in the market. McGraw can mitigate the damage, if it chooses the strategic direction, so that these operations will improve the department, make him a competitor which was hard to compete in the market, that is thought to be improving in terms of quality, quantity and price.

3- What effects is the change in the strengths and weaknesses of competition having on the Oscar Mayer Division? How does this impact the investment decision?

Answer:

OM Strengths:-Well-known Brand-Strong distribution channels -Relatively High market share-powerful experience curve-high profit marginOM Weaknesses:


-is relatively high price-is not low fat product (is not healthy)-is not convenience

OM is a Cash cow segment, it means that it has Relative high market share and relative low market growth, Due to its strengths he has already got a high market share and due to its weaknesses and the new trend in market which is looking for more healthy foods with lower prices, this kind of product is losing its market growth. In this situation competition would affect the OM in some ways. For example more healthy and lower price products would outpace the OM.

According to the statistics department of Louis Rich is an advantage if you are looking at increasing demand. Demand for the Oscar Mayer brand products has declined. Although Louis Rich has the advantage of and demand for its products slows down slightly.

The objectives are to increase production volume by 4% compared to the previous increase profits. McGraw believes that one should reduce the price of products, invest in quality, outstanding strength Louis Rich, advertisements and new products, based on healthy and their ease of use and many other strategic processes to balance opportunities.

4- Absent any resource constraints, which of the four departmental directions do you think is the most viable? Which is the second best strategy? Which is the least viable? According to the market trend which is going to consume white meat more than the red one, The best strategy is to invest on the LR and to improve this product soon. Roeth for this kind of product is relatively high, They can also promote this product and make advertising to get the more market share, since the market growth is high they can change the the LR location in BCG matrix from the Question mark to the star. In this way they can insure the long-run for the profit. The next one would be the investment on the OM, because they have the good market share for this product and their 82% income is due to the OM and in fact it is a big Cash Cow for this firm which could provide the short-run profit.The worst one is NP,

5- Given the information in the case, what strategic course do you think the Division should pursue?

One of the key issues faced by McGraw is that there is a large gap between his projections for next year, and what the manager's are promising him . His goal is to obtain a 15% increase in the operating income from his division (OM, LR and NP). The managers are projecting a decrease of 5.2% from the current year. In absolute terms there is a gap of $27 MM in the projected divisions operating income. If McGraw were to keep his A&P budget the same as last years, he would save $32MM over the managers' projections. Therefore, one solution could be to effectively use the strengths of the product lines and the A&P dollars by consolidating his sub-divisions Analysis: Comparing the contributions and costs of the three product lines OM, LR and NP as a


percentage of the total division's numbers for the three years can give a detailed picture on the successes and failures of each sub-division, their strengths and weaknesses. This exercise lets us determine what percent of the divisions' A&P budget is dedicated to Oscar Mayer vs. what percent of the division’s operating income comes from OM vs. LR. Louis Rich Brand Strengths are growing market segment, "health conscious" segment contributing to the rise in the operating income exponentially. However, a 33% of division's advertising and promotional budget is being consumed for a 24% of total revenue or 14% of division's operating income. While contribution to operating income is exponential, it is still less than 1/4th of the total divisions operating income. Oscar Mayer Brand has been developed over 100 years. It has a strong brand name, and Brand equity associated with it. It has established marketing and distribution channels.

The numbers show a decline in the operating income of 18% over 3 years in part this may be due to a decrease in percentage of division's A&P expenses directed towards OM brand. There is a question as to whether LR brand is cannibalizing OM brand. New Product Stuff' n Burger numbers shows that a proportionately large spending on A&P is still generating no operating income. It points out the difficulty and expense involved in developing new brand or products. One of the key questions to ask is if the Louis Rich Brand is eating away into the Oscar Mayer's market share? The two tables below show a decrease in the Oscar Mayer Brands revenue, its A&P expenses and its operating income, while an increase in the Louis Rich Brand market share, which coincides with the consumer trend of preferring white meat over red meat. Additionally, LR brand generates less operating income for the number of pounds sold compare to Oscar Mayer. Our next question follows, Can Louis Rich Brand alone make up the income short fall? The answer seems no, looking closely at the numbers, one can clearly see a decline in pound volume from 3% to 2% in the current year. Increase in the operating income is likely being driven by the change in consumer trend towards white meat, not superior management of the sub-division or its marketing distribution channels.

Additionally, LR is generating only 7cents per pound of operating income compare to Oscar Mayer which generates 16 cents per pound. The decline in Oscar Mayer brand is also due to consumer trend, but is further compounded by a decline in A&P and increased competition. Loss of market share is evident by the 6% decline seen in pound volume matched by a 6% decline in revenues. Oscar Mayer has so far opted to loose market share rather than lower its price. Based on this analysis, there is more to loose if the Oscar Mayer brand is allowed to wilt over the Louis Rich Brand. Giving up on Oscar Mayer would mean losing its well established, well recognized OM brand name and its equity.

May be even future profitability may be lost if the trend towards white meat is only a temporary one. This can be seen in McTiernan's Report on consumer satisfaction survey, in which the red meat out performs in overall taste and compares well with respect to convenience. Therefore, the strategy we suggest to McGraw is to build up the Oscar Mayer Brand, to merge the Louis Rich brand under Oscar Mayer, for example co-brand, and to introduce new packaging of their products (ex. Lunchables and Zapptites) some white and some red meat to recapture the lost market share. To consolidate the distribution and A&P spending around the Oscar Mayer's well established brand. ActionsIn accordance with the above strategy we would suggest that Oscar Mayer and Louis Rich Brand modify and develop an integrated strategy which would require


altering the existing branding strategy to accommodate the consumer trends, to extend the product line and to competitively price the OM products.

Emotional Branding StrategyOscar Mayer brand can be highlighted into the moving market focusing on emotions. Television commercials featuring a get together among family and friends, barbequing on weekends, company picnic children stressing on fun, and relaxation. Have the barbeque grill open showing a variety of white and red meat Oscar Mayer products. The tag line can say Oscar Mayer: offering choice and variety, fun and relaxation. Extend Product line This would require the company to reposition Louis Rich brand under Oscar Mayer Brand, without loosing its target audience, the health conscious group. (Both division can leverage off of the well reputed brand name Oscar Mayer.) Introduce repackaging, ready to eat lunches - including red and white meat variation. The focus here would be convenience for working people and enjoyable for kids.Pricing StrategyRunning a sales promotion offering two for one package deals.

Can sell white meat products via vending machines at health clubs and give free Samples to women.Cutting price of Oscar Mayer products in order to gain more market share and become more in line with the market competition. Products from Oscar Mayer and Louis Rich under the Oscar Mayer umbrella would need to be priced competitively with products from Smithfield, Ball Park, Hillshire Farms

Because of this matter that market growth in OM product is decreasing, and market share and income in LR is relatively small at this moment, In my opinion it is better that this firm invest simultaneously on 2 strategies: 1: keeping OM in Cash Cows segment for getting to short term objectives, making new product which is healthy and convenient under the brand of OM and 2: investing on LR to push it from Question Marks group to Stars group.(to getting to long term objectives)

6- Which of Jim Longstreet’s new product ideas is less likely to succeed? Why?

"Launchables": Due to this matter that they don't have any experience about this kind of products, and also they do not have any information about its market and consumers. On the other hand, they have a similar experience about production of "Zappetites", But since we are risky we would try this category.!!!!!!!

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