Oscar Mayer: Strategic Marketing Planning
Harvard Business School XXXXXXXXXX
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 o
ineffective handling of an administrative situation.
Copyright © 1997 by the President and Fellows of Harvard College. To order copies or request permission to
eproduce materials, call XXXXXXXXXXor write Harvard Business School Publishing, Boston, MA XXXXXXXXXXNo
part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in
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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
usiness 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
ucks.” 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 cu
ent product portfolio is
slowly shifting out of alignment with consumer trends. Specifically, your traditional red
meat products like bologna, hot dogs and bacon, all
anded 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 lowe
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
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2
has kept the “total Division scorecard” looking favorable.
But the investment costs to build this “second
and” have been high, and we fea
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
ands of turkey and chicken lunch meat
and hot dogs.
If Oscar Mayer
anded 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 cu
ent 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
ings me to what you might consider doing about all of this. Here’s a
possible direction:
“The Division should continue to focus on
oadening 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 cu
ent 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 su
endering 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
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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 yea
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
and awareness and trial by heavying up ou
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
eak 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 yea
profits” strategy seems right.
Estimated Profit & Loss: Louis Rich
Cu
ent Year Next Yea
Pound volumea XXXXXXXXXX
% 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.
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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. Cra
ies, 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 bo
owed 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 gra
ed the one from Jim Longstreet, who was the newest member of his
direct management team,
ought 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 “
oadening and contemporizing our product lines against emerging
consumer needs.” Yes, we have to stay profitable in the interim, but 85% of ou
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5
cu
ent 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 majo
category within processed meats that can address changing consumer lifestyles
and give us a “growth engine” that will ca
y 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